
Complete DIY guide: legal basics for startups - dsplatonov
http://blog.staply.co/startup-legal-do-it-by-yourself
======
grellas
In launching a venture, use a good lawyer to help you define what is the best
legal structure for your venture, who owns what piece of that venture and on
what earn-out terms, if any, who has rights to any IP developed by
participants in that venture, and who has what authority to run things, either
as owners controlling the ultimate management of a company or as
directors/officers having strategic or operational control over how things are
done. And do all this with tax, securities law, and other legal bounds in
mind.

Are there hazards to founders as they roll along in the earliest stages
without the benefit of lawyer review or guidance? Of course. And those hazards
lie precisely in failing to understand what needs to be done or in how to do
it.

But lawyers cost money and every founder is or should be cognizant of the need
to budget wisely for such costs.

So there is room for good DIY guides and services. Indeed, in today's era, DIY
guides and services are great and can be valuable: one of the great
distinctives of our modern startup era lies precisely in having savvy and
informed founders (except for serial entrepreneurs, this was a relative rarity
at or before the bubble era). So, yes, by all means, do educate yourself and
do use lawyers wisely so as not to overpay or overdo the legal pieces that are
secondary (albeit important) to your venture. I encourage what the author is
doing here and hope it lives up to its promise.

That said, I don't believe a DIY guide should include arbitrary rules or
procedures.

In particular, I disagree that a founders' agreement is an essential first
step on the path toward startup launch. In 30 years of specializing in this
stuff, I have seen such agreements in very few startups. They can be helpful
but there are no arbitrary rules about the need to use them.

A founders' agreement is after all a _formal legal document_. It locks in
relationships and commitments - meaning, if you agree to its terms, your
failure to conform to such roles and commitments can have legal consequences.
And, while that can be fine, and while it can certainly go a long ways towards
limiting the hazards mentioned above that a lawyer would normally deal with,
it can also be frustrating for founders to front-load legal things at a time
when the venture is in greatest flux. In many cases, you can wind up trying to
define in the abstract, and hence lock in, roles and relationships that are by
definition still not settled.

As always, the goal is to use good judgment and common sense while educating
yourself to the maximum extent possible either through DIY guides/resources or
with the help of lawyers. But do not think that there is only one process for
getting to the goal of a good launch. If a founders' agreement fits your needs
(and if the author offers a good one), by all means use it to your benefit. If
not, don't get stymied by the thought that you have failed to meet some pre-
condition to launch that really does not exist.

~~~
tptacek
Thanks for this. Also: does formalizing the role of the CEO matter as much as
this article suggests that it does? In two startups I've been involved in,
"CEO" was chosen with a coin flip.

~~~
clogston
It may not really matter at first, but based on my experience it quickly
becomes an issue once you grow to a size where you're either fundraising or
hiring. In our case, as soon as we started relationship-building with angels
and VCs it made sense for us to choose who the CEO is rather than spend 5
minutes trying to explain why we (as 3 co-founders with equal equity) didn't
need titles. Now that we're ramping even more towards fundraising I'm
realizing just how much of a full-time job that is for the person with the CEO
title. Someone in the company will have to take point on that front and it
really makes sense for them to be CEO.

------
gamblor956
Always take legal advice from a non-lawyer with heaping grains of salt,
because they almost always _get it wrong._

If you really are too shortsighted to pay for necessary legal advice for
fundamental aspects of your business and want a DIY guide, check out the NOLO
series, which is written and vetted by practicing lawyers and includes
business-operational perspectives and considerations.

~~~
dsplatonov
You're right, but if you follow the recomendation, it wont hurt the startup
company. Because it's better than nothing.

~~~
bayonetz
The power that attorneys' hold is reminiscent of the power early catholic
priests held when they knew how to read and everyone else was illiterate...can
you imagine? I, like most normal people, am basically legal-illiterate.
Absolutely, something is better than nothing. Even if it just serves to raise
my awareness of what I need to pay attention to as I boot up my business. Yes,
the NOLO books are great and all but dont't stop there. We should have 10's of
NOLOs and 1000's of bloggers competing and contributing in this space already.

Thanks OP, hope you stay motivated with this!

~~~
ZenPro
The power that (coders/doctors/mechanics/opticians/dentists/security
professionals) is reminiscent too. That is why we people gain a trade.

HN would be in uproar if someone wrote a blog saying - hey you don't need a
CTO to launch your tech startup, just read my blog on Visual Basic and away
you go.

Start ups ask people to invest their lives into the enterprise. The least you
could do is get proper fucking legal advice to ensure your employees and co-
founders are covered.

Or don't. And get raped by either the taxman or a VC legal counsel.

------
seanmccann
This is actually really dangerous advice in my opinion. While it's important
to define performance expectations, performance can be subjective and this
agreement could leave well performing founders in a bad spot.

Seek proper legal advice, please. You get what you pay for.

------
ausjke
Come on, this is great for founders who is struggling to survive before they
can hire lawyers. Thanks a lot for the blog and it's easy to learn some basics
comparing to the 400-page Nolo books which I have a few.

~~~
pepon
100% agree. I think there are many lawyers posting in this thread ;)

Thanks a lot to the author!!

------
Imagenuity
The inherent contradiction here always amuses me.

"Don't listen to blog writer because this, that and other thing, but of course
listen to ME the commenter!"

The whole point of the post is if you're a founder, you need to take care of
these legal things: Founders Agreement, vesting & performance, IP, NDA,
responsibilities, etc. (NOTE: not a complete list)

Of course you should get a lawyer so it is done right and suited to you.
Having made all these mistakes, I wish I had known about these things before
making these classic blunders.

However, if there are boilerplate agreements given with the advice "use
these", THEN release the hounds.

------
lukasm
Is there a good book/blog with high bang-per-page for newbees? How to avoid
rookie mistakes like Zuckerberg's with vesting? What do I need to know from
idea to series A?

~~~
billmalarky
What sort of mistakes did Zuckerberg make?

~~~
dsplatonov
when investor become a shareholder of the company, the shares were derived
from Eduardo Saverin (co-founder) shares only

------
tptacek
Why would you need documented performance plans for all the founders? They
aren't normal employees. If you want to get rid of one, can't you just vote
them out?

~~~
clogston
It's good to set expectation up front with each other, and a performance plan
is one way to go about doing it. The downside to completely getting rid of a
co-founder is:

1) They're likely going to take /some/ amount of equity with them (have a
vesting plan!)

2) Getting rid of a co-founder before you reach critical mass will be
detrimental to the business. If not, they probably weren't a good pick for co-
founder.

------
nirmel
On a related note, if anyone needs some help from real lawyers with legal
stuff, we at Lawdingo (YC W13) are happy to get you connected to a startup
lawyer for basic legal advice, or for some quotes on routine legal needs.
help@lawdingo.com or 212-785-0632 (ask for Nikhil).

------
walshemj
Not to be picky but you need to say for what legal jurisdiction this applies
to - advice specific for a USA based company is worth about as much as a
chocolate teapot in other country's

~~~
dsplatonov
It is mentioned in the article - USA California and England

~~~
walshemj
mm so incorporating a company and how TUPE applies on takeovers is the same in
the UK and in CA and the USA I never knew :-)

------
ZenPro
Since you failed to even add a basic legal disclaimer to your own blog I will
pass. Unless of course you are stating that your blog constitutes legal advice
and I can sue you if things go wrong for me...

Every law student will attest that nothing replaces the advice of actual legal
counsel. Even lawyers get a lawyer when they need one since you need someone
with expertise that up to and including that _minute_.

If you want example of a sterling legal disclaimer then check out

[http://www.jisclegal.ac.uk/aboutus.aspx#Disclaimer](http://www.jisclegal.ac.uk/aboutus.aspx#Disclaimer)

A website dedicated to providing legal information.

~~~
teachingaway
I think a lot of these "not legal advice" disclaimers are overkill. You can't
get proper "legal advice" from a blog. You get legal advice when you hire a
lawyer. A blog might be full of accurate and useful legal information, but
that doesn't make it "legal advice" in the sense that you can sue the blogger
for legal malpractice.

Maybe I'm wrong here, but has anyone actually seen such a lawsuit?

~~~
ZenPro
Depends if you consider the blog and subsequent invitation on HN to be an
offer to treat - acceptance being the implementation of said advice.

Without a legal disclaimer then the blog could _theoretically_ be held
accountable as they positioned themselves as the authority and invited action.

------
Rolpa
It is always wise to tread legal waters carefully. Always keep in mind that a
lawyer with his briefcase can steal more than a hundred men with guns.

------
ares2012
I would be wary of taking advice from a CEO who cannot fire his cofounder.
Technically that means he is not the CEO and there is no one explicitly in
charge of the company.

~~~
clogston
In early stage startups, the title of CEO has more to do with who's in charge
of vision and runway and less about org structure. Decisions are usually made
based on an equity stake.

~~~
ares2012
That is most definitely not the case for most start up companies I work with.
Not have a CEO day one who runs the company is usually a sign that you have
not started a company before.

~~~
mikeyouse
Most C-Level employment decisions are made by the board on behalf of the
shareholders. Many new companies do not have a BOD yet, so the shareholders
will have 'direct' representation. Extremely early stage companies will have
all of their shares split between the two founders.

The mere presence of a "CEO" title doesn't grant one founder domain over the
other(s), and it shouldn't, but this helps explain the frequency of founder
drama.

------
alexbilbie
Is there anything like this for UK startups?

~~~
lgmspb
Cofounder of Staply here.

It is also applicable for the UK. When it will be different, we will provide
clear examples for the US and the UK.

~~~
ZenPro
Are you the copywriter? The grammar and spelling is shocking.

~~~
lgmspb
Yes. I tried to do my best, but I'm not a native speaker... Sorry if that
annoyed you.

~~~
phren0logy
I noticed that also. It is not about being annoying, it's that language
matters when it comes to legal issues. I'm monolingual and not throwing any
stones, just staying that in the legal arena this is not an unreasonable
criticism.

~~~
walshemj
I know of several UK court cases that went on for decades over tiny difference
of opinion or wordings on a pension scheme documents.

In one the use of a single word instead of another was the key point.

