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So, you’ve got a great idea for a #startup? Here’s why #shareholder agreements can be pivotal to your success. #smallbusiness #ceo #smallbiz #businessowner #shareholders #advice

My clients lost a million dollar funding round because they forgot to make a Founders Agreement. If you're starting a new business with co-founders, having a Founders' Agreement is crucial. Here are some of the most important clauses that need to included in them. 1. Equity Split: Decide who gets how much of the company. Make sure everyone's contributions are fairly reflected in the agreement.    2. Roles and Responsibilities: The CTO should not do the COO's job in his absence. Hence its important to Clearly define who does what to avoid confusion later.    3. Decision Making: Companies = conflicts, hence outline how decisions will be made. Will it be majority vote, unanimous, or the CEO has veto power?    4. IP Ownership: Specify who owns the intellectual property and how it will be handled if someone leaves. Its imperative that the IP remains with the "Company" irrespective who creates it in their capacity of work.    5. Vesting Schedule: Protect the company if a co-founder leaves early by setting a vesting schedule along with a Cliff period for the shares issued to them in the beginning.    6. Exit Strategy: Its better to always have an exit strategy. Consider it as an insurance for the company. Discuss what happens if someone wants to leave or dies or becomes a lunatic or if the company is sold. A solid Founders' Agreement can save a lot of headaches down the road. Don’t skip this step! Do contact your Lawyer to draft one for you. Its the best investment you will ever make as a founder. #law #Startups #Entrepreneurship #FoundersAgreement #BusinessTips

Why Founders Shouldn’t Overlook Contracts with Co-Founders and Investors When starting a new venture, many founders jump in excitedly, but neglect the importance of having strong contracts in place with co-founders and investors. Here’s why these contracts are critical and how they can protect your company’s future. 1. Equity Splits and Vesting Schedules One of the biggest challenges founders face is determining how to split equity fairly. Without a clear plan, you risk giving away too much ownership too early. Implement a vesting schedule (typically 4 years with a 1-year cliff), so co-founders and employees only earn their equity over time and based on performance. This ensures that if someone leaves early, they don’t take a big chunk of your company with them. 2. Performance-Based Clauses for Co-Founders and Investors You should include performance clauses in agreements, especially for co-founders and investors who are meant to contribute value. Define clear, measurable milestones they must meet to retain equity. If someone isn’t adding value (whether it’s a technical role or strategic partnerships), you have a contractual right to adjust their stake or part ways. 3. Investor Agreements: Beware of Early Dilution Many early-stage founders give away large portions of equity in exchange for funding or “connections.” This can be dangerous. You need to ensure investors provide real, ongoing value—beyond just cash. Use contracts that allow for smaller equity stakes initially, with the possibility of more based on their future contributions. 4. Common Pitfalls A common mistake is not setting up a clear vesting structure. I’ve seen founders give away 30% equity to an investor early on, only to realize the investor didn’t bring the promised value. They couldn’t undo the deal, and it hurt their ability to attract new partners. Another pitfall is giving too much equity to someone before they’ve proven their commitment. 5. Protecting Your Future Make sure all contracts have clauses that allow you to adjust or remove someone from the team if they’re not contributing as expected. This can include: - Performance milestones - A clear vesting schedule - Termination or buyback clauses Setting these things up from the beginning ensures that everyone is incentivized to contribute to the long-term success of the company. Conclusion Startups are exciting, but protecting your business with the right contracts is crucial for avoiding future conflicts. Take time to carefully draft agreements with co-founders and investors, and ensure everyone understands their roles, responsibilities, and how they’ll earn their equity. This will save you a lot of headaches down the road and help set your venture up for success

If you are not in the room, you might not be in the Joint Venture deal for long. I witnessed first hand as someone learned this the hard way. Quick story for a Friday: We were representing a party (I will not say which) in a massive joint venture opportunity. You had the typical #jointventure players - key operator, financier, and a PE firm (industry experts/investors) that was putting the whole deal together. We flew to meet in person and hammer out the details of the joint venture. The meetings were going well. Open items were getting crossed off. And it seemed like we would be able to reach a final deal the next day. That night the PE firm representative had too much fun on the town and decided to skip the last day of meetings and fly home early thinking that the deal was almost ironed out. In the final days meetings that the PE representative missed, the operator and financier decided that they could accomplish the same goals and take a larger share of the profit if they just cut the PE firm out. By not being at the table to reiterate their value (including the fact that they were the ones that brought the deal together in the first place) and show face to their fellow partners all the way until the deal was signed, the PE firm was cut out of a lucrative deal. Nice reminder to keep your seat at the table. And, a good reminder that JVs succeed when its clear that people are adding value and dedicated to the success of the venture. ______________________________________________________________________________ Transition Point Law has a dedicated practice group focused on negotiating and papering partnerships and joint ventures. These deals can be complicated. Don't be like this PE firm - Reach out to ensure you set yourself up for success.

Clearing the Confusion: Partnership vs. Shareholding in a Business Clients often mix up the concepts of partnerships and shareholding in a company. Recently, a client asked to incorporate their business with a 50-50% shareholding arrangement. After incorporation, they referred to themselves as “partners,” thinking their stakes meant they were in a partnership. But when the bank requested their partnership agreement, confusion followed. Here’s a quick breakdown: Partnership: a business arrangement where two or more people share profits, losses, and responsibilities for the business. A partnership agreement outlines roles, responsibilities, and profit distribution. Shareholding in a Company: ownership is divided into shares. Shareholders own part of the company, which is a separate legal entity. Shareholders have rights to dividends based on their shares but do not manage daily operations. So, if your business is incorporated and you hold 50% of the shares, you're a shareholder, not a partner. Remember, Shareholders invest in the company and enjoy profits through dividends, whereas Partners are involved in running the business and share its responsibilities and profits. These distinctions can be nuanced, so if you're unsure whether to form a partnership or incorporate a company, consult with a legal professional. Need more clarity on your business structure? #Businesslaw #CorporateStructure #Partnership #Shareholders #Incorporation #LegalInformation #Startups #StartupsConfusion #DoingBusinessRight #BusinessFoundation

Equity Distribution: Clearly outline each co-founder's percentage ownership in the company. Roles and Responsibilities: Define the roles and responsibilities of each co-founder within the company. Decision Making: Establish how major decisions will be made and if any co-founder has veto power. Vesting Schedule: Determine the vesting schedule for each co-founder's equity to prevent premature departure. Capital Contributions: Specify each co-founder's initial financial investment and any ongoing capital commitments. Intellectual Property Ownership: Clarify the ownership of intellectual property created both before and during the partnership. Compensation: Discuss whether co-founders will receive salaries and how compensation will be determined. Exit Strategy: Outline procedures for buyouts, acquisitions, or dissolution of the partnership. Non-compete and Non-disclosure: Include clauses to prevent co-founders from competing with the company or disclosing confidential information. Dispute Resolution: Establish procedures for resolving conflicts between co-founders. Founder Departure: Address the process and consequences if a co-founder decides to leave the company. Dilution Protection: Implement measures to protect co-founders from excessive dilution of their equity. Investor Relations: Determine how co-founders will interact with investors and handle equity dilution from funding rounds. Employment Contracts: If applicable, detail the terms of employment contracts for co-founders. Confidentiality: Emphasize the importance of keeping sensitive company information confidential. Invention Assignment: Ensure that all inventions created by co-founders belong to the company. Termination: Specify conditions under which the partnership can be terminated. Succession Planning: Address what happens in the event of a co-founder's death or incapacitation. Advisory Board: Discuss the formation and role of an advisory board, if applicable. Governing Law: Specify the jurisdiction and laws that will govern the agreement. Each of these points helps establish clear guidelines and expectations for the partnership, minimizing potential conflicts and protecting the interests of all co-founders involved. #PartnershipAgreement #CoFounderAgreement #BusinessPartnership #Entrepreneurship #StartupAgreement

Are you exploring different ways to exit your business? In our latest article, “5 Reasons an IPO isn’t always in an entrepreneur’s best interest” we share the top 5 misconceptions about an IPO and how you can reap better rewards, in most instances, by selling to strategics. Read more here: https://lnkd.in/djDMzRzN #ExtraordinaryExit #IPO #SellingtoStrategics #Entrepreneurs

🚨Are you aware of the critical legal duties you might be overlooking as a founder both during and post your fundraise? Founders, don’t forget your directors duties both during and following your fundraise. Let’s break it down: 1. Duty to Promote the Success of the Company Your primary duty is to ensure the company’s success for the benefit of its members as a whole. This means making decisions that enhance long-term value for shareholders and stakeholders. Post-fundraise, this often involves strategic allocation of the newly acquired capital to drive growth and innovation. 2. Exercise Independent Judgment While investors bring invaluable insights, it’s essential to exercise your own independent judgment. Balance their input with your vision and the company’s best interests. Remember, you are the founder and you have a unique perspective and expertise! 3. Duty of Care, Skill, and Diligence Post-fundraise, the stakes are higher, and so is the scrutiny. Ensure you apply your skills diligently, making informed decisions backed by thorough research and consultation. It’s about being proactive in mitigating risks and seizing opportunities. 4. Avoid Conflicts of Interest Transparency is key! Any potential conflicts between personal interests and those of the company must be disclosed. This maintains trust and integrity with your investors and other stakeholders. 5. Not to Accept Benefits from Third Parties While networking is vital, be cautious about incentives from third parties that might influence your decisions. The focus should always remain on the company’s best interests. 6. Declare Interest in Proposed Transactions or Arrangements If you have any personal interest in a proposed transaction, it’s imperative to declare it. This ensures decisions are made transparently and in the company’s best interest. 💡 Key Takeaway: Transparency, Diligence, and Balance💡 Navigating post-fundraise duties can be challenging, but with a clear understanding of your legal responsibilities, you can steer your company towards success while maintaining strong investor relationships. #Startups #Founders #Fundraising #InvestorRelations #CorporateGovernance What’s been your biggest challenge in balancing investor expectations with your duties as directors? Share your experiences👇

Understanding the Cap Table: The Base of all Companies Every startup founder should be familiar with the capitalization table, commonly known as the cap table. This crucial document lays out the equity ownership of a company, detailing who owns what, and how much each stakeholder owns. Here’s a straightforward breakdown of what a cap table includes and an example to illustrate: What is a Cap Table? A cap table is a spreadsheet or table that shows all the company’s securities such as shares, preferred shares, warrants, and who owns them. It's used to keep track of equity ownership, and it reflects the effect of future investment rounds, employee stock options, or other types of equity on the overall ownership structure. Example of a Basic Cap Table: Founder A: 50% ownership, 500 shares. Founder B: 30% ownership, 300 shares. Investor X: 20% ownership, 200 shares. Total issued shares: 1000. This simple example shows the current stake each party holds. The cap table becomes a dynamic tool used during negotiations and funding rounds, helping all parties understand their respective stakes and the impact of new equity issuances. Why Is It Important? The cap table provides a clear snapshot of a company's ownership and helps manage changes in equity distribution. It is crucial during funding rounds, acquisitions, or any other corporate restructuring. For startup founders, maintaining an accurate cap table ensures transparency with current and potential investors and helps manage expectations during equity discussions. If you're setting up your company's cap table or updating it, consider consulting with a financial advisor to ensure accuracy and comprehensiveness. #captable #startupterms #simplifyingcomplexterms #sha #termsheet #startuplegal

Before you go for IPO, your audit firm must comply with global standards set by the Security Commission. Without meeting these requirements, your IPO plans could fall apart. Don’t risk it—ensure your audit firm is qualified. Get the guidance you need with 10XValley to avoid falling short. Contact us for more info: wa.me/60123453566 #entrepreneur #business #IPOready #ipo #10XValley