- Choice of Entity: Consider whether a S corporation election or LLC is appropriate.
- Both limit liability to some extent and both allow flow through single-level taxation.
- Some companies are now forming as an LLC to avoid the restrictions imposed on S corporations, such as a maximum of 100 shareholders and only one class of stock.
- However, LLC’s have restrictions such as in general they cannot have employee service provides also be owners, so for an LLC to have employee owners, an LLC may need to attempt to create a complicated holding company structure.
- Work with the company’s accountant and lawyer to determine the best structure.
- Organizational Documents: Draft a clear operating agreement for an LLC or bylaws for a corporation.
- Among other things, clarify voting thresholds/controls and what happens if one owner wants to sell or transfer its interest.
- Data Room: Create and maintain a data room, which is a secure, organized and backed-up electronic place to store the companies executed contracts, such as formation documents, NDA’s, vendor agreements and client contracts.
- Authorized Signers and Approval Matrix: Create and update as needed a list of authorized company signers and approval thresholds (e.g., the company CFO needs to approve any spend over $5,000). Circulate internally.
- Utilizing an electronic signature platform like docusign is efficient.
- Internal Legal Training: Conduct 20-to-30-minute internal legal trainings over lunch. Topics could include intellectual property protection, contract review process and key provisions and the attorney-client privilege.
- Employee Handbook: Work with the company’s HR team to draft and circulate an employee handbook.
- Form Documents: Draft, maintain and utilize as frequently as possible form agreements for common contracts, such as NDA’s, supply agreements and client contracts.
- Internal Meetings: Hold brief internal meetings with key colleagues and business departments to discuss common legal needs and their concerns/priorities as well as pressure points.
- Confidentiality Agreements: Ensure all employees and all third parties sign confidentiality agreements to protect the company’s confidential information.
- Intellectual Property Protection: Hold a meeting with the individuals who may create or have created intellectual property. Describe the primary types of IP (patents, trade secrets and copyrights). If there may be anything protectable, engage an IP attorney for a meeting.
- Equity Plan and Administration: if your company has an equity plan, ensure it is properly administered and 409A or other valuations are conducted as needed (typically when there is a material event impacting the company’s valuation, but at least once a year).
- If the company intends to have a large employee base with multiple owners, consider using an equity management software system (like Shareworks or Carta) as opposed to an excel spreadsheet for the company’s cap table.
- Board or Managers Meetings: Help prepare Board meeting materials, keep Board meeting minutes, have them approved and signed at the next Board meeting and store them in the data room. Obtain necessary approvals at each Board meeting.
- Real Estate: Assess the company’s current real estate situation and future needs and determine whether a long-term lease or buying a facility makes the most sense.
- Economic Incentives: Engage with your local state and county representatives to ascertain whether any economic incentives, such as tax breaks or job credits, are obtainable as a result of local investments, hiring, etc.
- Supply Terms & Conditions: Create supply terms and conditions and post to your company’s website. Then, incorporate those posted terms and conditions by reference into supply purchase orders. This method can at least serve as a bridge until the company is able to enter into long-term supply agreements with its key suppliers.
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