On February 22, Fritz Battcher, Partner in Holland and Hart, discussed the common pitfalls of starting and growing a business.
This presentation will focused on Raising capital, ownership challenges, understanding legal pitfalls of a growing business and included an informal Q&A with Fritz.
3. 1. EXERCISE CAUTION WHEN LEAVING
FORMER EMPLOYER
Non-Disclosure
Non-Compete
Non-Solicitation
Don’t Take Former Company Materials
Carefully Review What You Sign
4. 2. DOING BUSINESS THROUGH AN ENTITY
Choice of Entity
Corporation
• S or C Corp.
Limited Liability Company
Respecting the Entity
Company Bank Accounts
Executing Contracts in Company Name
5. Not Always “Friends”
Provisions of LLC Operating Agreement or
Shareholder Agreement
Management/voting
Transfer Restrictions
Triggering Events
Buy/Sell
3. FAILURE TO EXECUTE SHAREHOLDER
AGREEMENT
6. Raising Capital Very Hard
Double the Amount
3 to 6 Months Effort
Time Consuming
4. UNDERCAPITALIZATION
7. 5. RAISING MONEY
Debt or Equity
Notes
• Convertibility
• Senior to equity
Equity
• Common Stock v. Preferred Stock
8. Securities Laws Will Apply
Registration requirements and exemptions
Anti-fraud rules
Both federal and state laws apply
Why you care/remedies
• Rescission
• Regulatory action
Broker/Dealer-Finders
5. RAISING MONEY
9. Select Your Investors Carefully
Fewer investors can be easier to manage
More sophisticated and/or experienced investors
may better understand your situation
Experienced investors can also provide non-
financial aid
5. RAISING MONEY
10. 6. GOOD RECORD KEEPING
Initial Assignments of Property
Confidentiality and Assignment of Invention
Agreements
Consulting Agreements
Loans and other arrangements
Minutes and ownership records
11. 7. PERSONAL LIABILITY ISSUES
Fiduciary Duties
To shareholders
To creditors
Securities Laws
Anti-fraud rules
Tax Laws
Withholdings on compensation
12. 8. PROTECT INTELLECTUAL PROPERTY
Identify IP
Patents
Copyrights and Trademarks
Advantages
Barriers to entry
Higher valuations
Non-Disclosure and Assignment of Inventions
13. 9. READ YOUR CONTRACTS
Don’t Be Surprised
It’s Your Business!
