Start-ups I: Introduction to
Business Law for Entrepreneurs
Technology Transfer Seminar Series
Brandeis University
February 16, 2006
Prepared by:
Karin Rivard
Assistant Director and Counsel
M.I.T. Technology Licensing Office
Key Questions
Why do I want to start a company?
 Who will fund the company?
 Who will run the company?
 What are my goals for the company?

Answers to these questions dictate the
structure of the company.
1
Why Do I Want to Start a
Company?
Technology needs me
 Seize an opportunity
 Challenge of leaving academia
 Get rich
 All of the above

2
Who Will Fund the Company?
Venture Capital
 Angels
 Friends and Relatives
 Self Funded: mortgage, credit cards,
etc.
 Strategic Alliance (captive to large
business partner)

3
Who Will Run the Company?
(and what will my role be?)

CEO/President
• Me. How hard can it be?
• Venture Capitalist or Installed Manager
• Friend or other Business Connection

Chief Scientific Officer
• Me.
4
What are My Goals for the
Company?
Build something of lasting value
 Sell out as soon as possible
 Both

5
Legal Structure of Start-up

Corporation
• C Corporation: Attractive to VCs
• S Corporation: Attractive to individuals

Limited Liability Company (LLC)
• Tax Benefits to all investors
• Higher Transaction Costs
• Difficult to complete future equity
transactions
• Must become Corporation before IPO
6
Getting Started (C Corporation)
Board of Directors
 Stock Issuances and Restrictions:

• Founders Stock: Common Stock
• Investors Stock: Preferred Stock

Employment Agreements
• Noncompetition Clause
• Nondisclosure Clause
• IP Assignment Clause

Location, Location, Location
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Corporate Structure

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Confirm Company Name
Certificate of Incorporation (DE, MA)
Authorized Shares
By-Laws
Board of Directors
• Chairman of the Board



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Principal Officers: President, Treasurer and
Secretary
Shareholders
Meeting Minutes
Votes/Resolutions
8
Equity Vocabulary

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Founders Stock v. Preferred Stock
Restricted Shares v. Registered Shares
Vesting
83(b) Election (Tax Treatment)
Shareholders’ Agreements
Stock Options/Warrants
Stock Option/Purchase Plan; Rule 701
Dilution
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Employment Agreement
Vocabulary

Noncompetition Clause
• What if still researching at University?


Other pre-existing or continuing consulting
arrangements?
Nondisclosure Clause

Unacceptable Publication Restrictions?
IP Assignment Clause
 Severance

• Parachute: Gold, Silver or Tin
10
Lease Vocabulary
Default
 Sublease
 Laboratory Ready
 Restrictions on Use of Space
 Restrictions on Growth

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Intellectual Property

Who owns it?
• DO NOT IGNORE THIS!
Disclose invention and all research
sponsors
 Get a license or ownership waiver
 Be aware of university conflict of
interest policies!

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Show Me the Money!

You need money to earn money!
• Banks/Credit Lines (Non-dilutive)
• Equity Investors (Dilutive)
• Convertible Debt Instruments
(Depends)
• Strategic Alliances
13
So Now You Are:
Organized
Managed
Funded
GET TO WORK!
(AND HAVE FUN)
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