Frequently asked questions

What are the first legal issues I should consider when founding a company?

The legal issues for new companies start even before you file a certificate of incorporation. Were you working another job while you were developing your business idea or writing the code for your software? If so, have you made sure that your previous employer can’t claim any ownership rights over this newly created intellectual property? Is there anything in your current or previous employment contract that might prohibit you from starting a new venture right away? These are the types of questions that a founder might have to answer even before you start a new company. Next you will want to consider what type of legal entity you would like to create, as this decision will dictate the taxes, paperwork, liability of the owner(s) and other legal aspects, as well as whether or not the company can have employees. On top of that, if you need to consider what types of government licenses, permits and/or registrations, if any, you might need in order to open your business and start accepting customers. Finally, you have to think about how you want to allocate the equity and what kind of internal governance mechanisms you would like to put in place prior to your first equity financing round.

What are key documents and agreements that a new company needs to have?

A bootstrapped company needs to file the necessary formation documentation, set up its internal governance mechanisms, issue its equity and make sure it owns all of the relevant intellectual property underlying the new venture. Every company needs to file either a Certificate of Formation (for a Delaware LLC) or Certificate of Incorporation (for a Delaware
C-Corporation) with the state of Delaware. Companies also need to memorialize their rules of internal governance – for a C-Corporation that would be found in the company’s Bylaws and in an LLC that would be in the LLC Operating Agreement. C-Corporations also need to make sure to properly appoint a Board of Directors to run the company, and see to it that the Sole Incorporator resigns. Everything after that is dictated by the context of the specific company. The company will want to issue equity out to its founders and likely subject those founders to four-year vesting if there are more than one (and don’t forget your 83(b) filing!!). Most companies will want to establish an employee Equity Incentive Plan and allocate a portion of the authorized equity to that plan. You also want to make sure that the company, and not the founders or employees, own all of the necessary intellectual property by having each founder and employee sign a Proprietary Information and Invention Assignment or Technology Assignment Agreement, as applicable. If you are operating in a different state or states than where your entity is incorporated (for example, a Delaware corporation with its base of operations in New York), you will want to file Foreign Qualifications to do business in any applicable states. Finally, as always, the company will need the proper board and stockholder (or member) resolutions approving, as necessary, all of the foregoing actions, documents and equity issuances.

How should entrepreneur should leverage their Bowery Legal advisors?

We want our clients to remember that even though we specialize in providing legal services, we also have the added benefit of having worked for years in and for private companies in all stages of the company lifecycle. This gives us tremendous insight into the often intertwined commercial and legal issues our clients regularly face. Clients that rely on us strictly for legal advice are only tapping into part of what makes our expertise so valuable. This might be your first time founding a company, but we’ve veen down this road several times before, which gives us the ability to anticipate not only what is around the next corner, but the corner after that as well. Our clients should think of Bowery Legal as strategy consultants with an expertise in law.