Startup Law 101 Series – Mistakes Founders Make – Misusing Form Contracts

Ours is an era in which legal forms proliferate and many entrepreneurs are tempted to use them without much thought given to customizing them for the specifics of their deal.

This is a mistake.

The unthinking use of legal templates assumes that the law is a mechanical process, as capable of simplification as is the process of selling widgets. The thinking goes something like this: You find a widget on the web. You buy it for a cheap price. You use it. Hence, no need for those middlemen lawyers who charge a lot for pulling the identical widget out of their drawer and handing it to you with their bill.

There are some partial truths here. Some contract situations are utterly routine. And lawyers sometimes have abused entrepreneurs by keeping them in the dark while running up billings in simple situations. It does not follow, however, that contracts are merely … Read More

Startup Law 101 Series – Mistakes Founders Make – Neglecting Securities Laws

Securities laws are not to be trifled with. Among other things, if you violate them, your investors can ask for their money back from your company and from those who control the company.

Yet founders are sometimes careless in complying with securities laws.

Here are some very high-level guidelines for complying:

1. The broad rule is this: either you register the shares to be offered or you find an exemption from registration for the type of offering your company will make. It has to be one or the other.

Registration at the federal level is a public offering. No early-stage startup does that.

At the state level, registration is still a formal and expensive process. Few early-stage startups do that either.

Therefore, the key securities law concern for any stock issuance by an early-stage startup is to make sure that the offering fits within an exemption to the registration requirements.… Read More