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Basic legal principles in relation to startups

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Basic legal principles in relation to startups

  2. 2. AGENDA 1. Introductions 2. Companies and Incorporation 3. Shareholders Agreements and Shareholdings 4. Founders & Directors Agreements 5. IP Protection 6. Non-Disclosure Agreements 7. Joint Ventures 8. Questions/End
  3. 3. FORGET EVERYTHING YOU KNOW ABOUT LAW FIRMS “Australia’s most innovative law firm, working with the best entrepreneurial minds in the country” – Huffington Post
  5. 5. BUSINESS STRUCTURE Sole Trader (ABN) Company Limited by Guarantee (Not for Profit/Charity Organisation) Company (Pty Ltd) Trust Partnership 1 2 3 4 5
  6. 6. Registration • ACN • Directors • Shareholders • Constitution WHAT ARE THE BENEFITS Pre-Registration • Check name • Understand and agree structure • Fee $469 (ASIC) Post-Registration • Corporate Key • ABN/TFN • Bank Account • Company Records
  7. 7. WHAT TO DECIDE BEFORE STARTING A COMPANY Who are the directors and who is the Secretary of the company? Remember Shareholder doesn’t mean Director Who are the equity/shareholders and in what %? How many shares do you issue? Do you have (or wish to establish) a discretionary trust to hold your shares?
  8. 8. SHAREHOLDERS AGREEMENTS Understanding your Shareholdings & Equity options …
  9. 9. SHAREHOLDERS AGREEMENT Voting Rights A shareholders agreement sets out the types of decisions that must be made by 50% of Directors, and others which are to be made by 75%. Voting rights are related to Shareholding held rather than Director Rights to Appoint and remove Directors Shareholders agreements will dictate how and when to appoint directors and will also assign either 1 or 2 directors per Shareholder, or outline which Shareholder has the right to appoint a director/s …is a contract which sets out the basic control structure of the company with specific agreed rules (EQUITY NOT MANAGEMENT) Payment of Dividends We are in business to generate a profit. Dividends and distributions can be paid from surplus funds in the company. You can restrict payments and outline how
  10. 10. SHAREHOLDERS AGREEMENT Accession Procedure This is the process of either issuing new shares or bringing new Shareholders into the company. A Deed of Accession removes the need to create a new Shareholders Agreement each time Transfer of Shares Pre-emptive right provisions ought to exist in all Shareholders Agreements. This outlines how Shares are to be sold, or transferred including buy-back provisions. Shareholders need to decide on “Drag” or “Tag” along options. Deadlock Provisions & Dispute Resolution Deadlock provisions occur in circumstances where Shareholders cannot agree and particularly where shares are held equally. Deadlock and Dispute Resolution provide some options in this event.
  11. 11. BE CLEAR What rights does that Shareholder have Who holds the Shares and how Management and Equity are to different things
  13. 13. WHAT IS IT? It is essential to get everyone on “same page” early Clear description of the business and its aims Exact roles and responsibilities of each founder Expectations including salary, meetings, commitment and non- performanc 1 2 3 4 … a contract between co-founders or directors relating to the management of the company including their roles and responsibilities.
  14. 14. WHY DO YOU NEED ONE? Keeping each other accountable is critical What happens in the event someone looses interest? How do you deal with a founder who invested time and money for 2 years then wants to leave yet keep their shares after that? How do you agree to resolve disputes and move the company forward? 2 3 4 5 The company/business is “beyond” you1
  16. 16. IP HOLDING COMPANY Setting up an IP holding company has many advantages. Keeping the IP company separate from the operations of the business means you can: - Protecting valuable assets from insolvency – by placing your business’ IP in a non-trading holding company, the IP (a valuable asset) is protected from the hands of creditors if the operating entity enters insolvency; - IP held separately from other assets can more easily be used as security or sold; - You can attract investment by virtue of having in place a sophisticated corporate structure; - Taxation/finance – to enable revenue to be generated in low income jurisdictions or to obtain research and development grants or deductions in jurisdiction with favourable rules/tax advantages in selling the IP from an IP company rather than the operating company. Capturing IP is one thing … how do you commercialise that and keep it safe
  17. 17. Franchise Agreement - Beyond IP you can replicate your business by offering “franchises” to be created COMMERCIALISATION OPTIONS When employing members to your team, it is important to ensure that: Assignment Agreement - Selling your IP to another person or company License Agreement - Grant a license to a third party to use your IP in a certain way without granting proprietary (ownership) rights
  18. 18. TERMS OF SERVICE Understands the service that is being offered Understands what is and what is not allowed or permissible on the website and any related portal agrees to waive any and all claims s/he might have as a result of their participation, or involvement in the website, service or portal Gives up the right to access the website, service or portal in the event of any breach 1 2 3 4 Clear indication that by signing up to the website or service that the client/customer….
  19. 19. REGARDLESS OF SIZE, PROFIT, NOT FOR PROFIT OR SOCIAL ENTERPRISE …. • The Corporations Act and common law duties apply equally to all directors and do not differentiate between FP and NFP • Directors obligations are onerous and are being enforced in both sectors • Being a NFP director predominantly for “charitable purpose” is no longer enough • All directors assets, reputation and livelihood are exposed The law, the regulators and the Courts, do not treat you differently,
  21. 21. DO IT RIGHT – PROTECT YOURSELF Confidentiality This protects you and your business from the receipt of or giving of confidential information to another party be it an investor, interested party or potential employees. Non-Disclosure Statement This protects you and your business against the potential risk of someone you share your vision, idea or intellectual property with disclosing to anther party or using the information for their own benefit. Protecting your ideas and intellectual property is an integral part of any business in assessing any risk exposures your business may have. Intellectual Property Trademarks, Patents and other forms of legal protection of your intellectual property is the smartest (and most expensive) way to protect your brand, identity and intellectual property.
  22. 22. NON-DISCLOSURE AGREEMENTS An NDA should, at a minimum, include the following : • identify the parties to the agreement and include their personal representatives/successors and permitted assigns • a comprehensive definition of the confidential information the subject of the agreement • the purpose of the disclosure • the obligations of each party • The consequences of any breach or disclosure • Effect of termination (e.g. return of confidential information) NDA and Start Ups
  23. 23. JOINT VENTURES Protection is key for your idea, business and future
  24. 24. JOINT VENTURES A joint venture is a vehicle through which businesses, investors or individuals enter into an agreement to exploit a business opportunity with the aim of profit. While the parties enter into the agreement together, each party brings their own assets, finances and skills to the venture. What are they ? Characteristics of a JV Every JV is different however, most share the following characteristics: • JVs are usually one-off enterprise projects • The venturers to a JV manage their own finances • The venturers to a JV remain separate legal entities • The assets of the JV are usually owend by the joint venturers separately • Unlike a company, a joint venture is not legally recognised as a separate legal entity, although parties can create a company vehicle to manage the joint venture
  25. 25. KEY PROVISIONS IN A JOINT VENTURE AGREEMENT • At a minimum a JV Agreement must set out: • Details of the JV including structure and purpose of the JV • Term of the JV • Financial contributions and share of profits/losses • Funding for the JV • Obligations of the venturers and warranties • Intellectual property created by the joint venture • Confidentiality • Management of the JV project • Termination (i.e. exit strategy) • Dispute resolution procedure
  26. 26. Melbourne: Level 13, 114 William Street, Melbourne, Victoria, 3000 Melbourne: Level 13, 114 William Street, Melbourne, Victoria, 3000 Sydney: Level 13, 50 Carrington Street, Sydney, New South Wales, 2000 Sydney: Level 13, 50 Carrington Street, Sydney, New South Wales, 2000 Changing the way that lawyers engage with clients and the way they provide legal services (03) 9008 5954 (03) 8678 1269 0417 679 007
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