Company Structure Formation and Corporate Basics

The right time to incorporate

Once you are ready to move forward with an idea, you should formally incorporate your as a legal entity. It is important to do this relatively early for a variety of reasons.  Read More...

Determining the right type of entity to create

Starting a company is risky, and many fail. Even if things go well, someone might sue the business. One of the primary reasons for operating your business through a legal entity is to shield your personal assets from claims made by the creditors of the business. If you operate the business through a corporation or a limited liability company (often called an LLC) then the owners and operators of the business will not generally be responsible for the liabilities of the business. Other legal structures like partnerships don't offer the same protection for all owners of the business. So between an LLC and a corporation, what's the best structure for you? Read More...

Where to incorporate

If you plan to raise external funding for your entity, then you should incorporate in Delaware. Delaware several advantages over other states. For many years, the legislature in Delaware has sought to attract companies to incorporate in Delaware by adopting a relatively company-friendly set of laws under which to operate. Delaware has a separate court whose sole job is to try cases under this set of laws, and so there are many published decisions interpreting these rules.  Read More...

Defining “qualified to do business” and where to be qualified

If your company is incorporated in one state (e.g., Delaware), but you are “doing business” in one or more other states (e.g., California, Massachusetts, New York, etc.), then the laws of the states in which you do business require your company to be “qualified to do business” there. To qualify to do business in a state, you typically need to make a simple filing with the Secretary of State’s office that describes your business. You will also typically need to file reports and pay a fee (typically referred to as a “”) in that state annually.   Read More...

Who makes decisions for the company?

The shareholders of a corporation are its owners, and they vote their shares to elect the directors. The directors sit as a board, which, typically acting through a majority, oversees the corporation’s management and sets the overall corporate strategy and direction. Directors have fiduciary duties, so they generally must act in the best interests of the corporation and its shareholders. The corporation’s directors elect officers, including a CEO, who conduct the day-to-day business operations. The board must also approve certain significant corporate matters, such as issuances and important contracts. Read More...

How startups compensate employees

All employees (including founders) must be paid in cash in amounts at least to satisfy the minimum wage laws established by federal and state laws. Many founders opt to go without compensation in the initial stages, but technically doing so is in violation of the federal and state wages laws. Employees may receive equity in addition to cash payments, but due to tax and other complexities it is generally not feasible to them equity in lieu of minimum cash wages. Although the market may reflect standard salaries for different types of positions, there is no requirement that employees receive any more than minimum wage, and the wages employees receive often depend on how large and established their employer is.   Read More...

Foreign employees and their need for a visa

A foreign student is permitted to own equity in a company and to serve on the of a company. A foreign student may not perform work for a company without obtaining appropriate authorization from the foreign student office at his/her university. The rules are no different for founders. Read More...

Who owns your IP

To successfully launch a new , the company needs to own, or have a license to use, the intellectual property that will be used in the business. This aggregation of IP does not happen automatically and requires careful planning with your legal counsel. Read More...

Licensing IP from a university or hospital

Many companies are built on intellectual property licensed from academic or research institutions, such as universities and hospitals. Companies may also license technology from those types of institutions to supplement their existing intellectual property. These licenses are typically patent licenses, but may also be licenses to software, materials or other intellectual property. Many institutions have their own licensing office dedicated to commercializing intellectual property of the institution. Some of the key points to consider when licensing intellectual property from these types of institutions include: Read More...

Retaining a license to your IP

It may seem logical and fair that the founders contributing IP they invented to launch a new should retain a license to that IP should the company fail or should the founders identify other uses for the IP outside those contemplated by the company. After all, the founders developed the idea and invented the IP prior to forming the company. Read More...

Non-competes with former employers

On October 1, 2018, significant changes to the law governing non-competition agreements in Massachusetts became effective. If you are considering such an agreement, please consult with an attorney. For a summary of the new law, see this WilmerHale Client Alert. Read More...

Reserving shares under the company’s option plan

The “pool” represents the number of shares the company sets aside in reserve under its option plan to compensate its employees, consultants, advisors and directors. The size of the option pool depends on the company’s stage, circumstances and hiring needs. When the company issues shares under the plan, it dilutes the ownership percentage of the other shareholders proportionately. However, any shares reserved under the plan that are not used (i.e., that are not sold or issued by the company) do not dilute the actual ownership of the other shareholders. Therefore, the size of the option pool at the initial formation of the company doesn’t really matter all that much—if the pool is too small and you need more shares, it can always be increased; if the pool is larger than you actually need, any excess shares don’t have any negative impact on the actual ownership of the company. Most will initially reserve an option pool that is big enough to provide for the equity incentives needed to cover their anticipated hiring needs for the first six months to a year. Read More...

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