LEGAL ISSUES FOR START-UPS

1. LEGAL ISSUESFOR START-UPS November 11, 2011 Adam Hull Travis Wilson

2. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Ass • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Drafting Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors & Exit Strategies

3. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Assets • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Drafting Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors and Exit Strategies

4. Choosing Which Entity to Form • No Entity or D/B/A Only • Partnership • Limited Partnership • LLC • Corporation • L3C

5. Taxation of CorporationsDouble Taxation IRS Tax on Dividend Tax on Ordinary Income Shareholder #1 Dividend Income The Company Shareholder #2 Dividend

6. Taxation of LLCs Pass Through Tax Treatment IRS Tax on Ordinary Income Member #1 Distribution Income The Company Member #2 Distribution

7. Taxation of S-Corps Pass Through Tax Treatment Plus Dividends IRS Tax on Ordinary Income Tax on Dividend Shareholder (as an owner) Income The Company Dividend Shareholder (as an employee) Salary

8. C-Corp vs. LLC • Tax Treatment • Liability Shield • Limitations on Ownership • Types of Equity Interests • Common & Preferred Interests • Options & Warrants (No ISOs for LLC) • Authorized Stock vs. Units • Flexibility

9. S-Corp vs. LLC • Tax Treatment • Liability Shield • Limitations on Ownership • Flexibility • LLCs as S-Corps

10. Tax Issues for LLC Members • Phantom Income • Mandatory & Elective Distributions

11. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Assets • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Drafting Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors & Exit Strategies

12. Choosing Where to Form • Local vs. Foreign Jurisdictions • Authority • Local Filing Requirements • Foreign Filing Requirements • Registered Agent • Jurisdictions to Consider • Delaware • Nevada & Wyoming • Utah • Jurisdictions to Avoid - California

13. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Assets • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors & Exit Strategies

14. Specific Provision to Consider (Preparing the Pre-Nup) These Concepts Apply Universally – Sort of… • Management Structure (Members, Managers & Officers) • Types of Ownership • Rights & Obligations of Each Series • Distributions • Capital Call Obligations • Restrictions on Transfer (ROFR, Drag Rights, Tag Rights & Rights of Assignee) • Buy/Sell Provisions • Indemnification & Advancement of Costs for Managers & Officers

15. Specific Provision to Consider (Preparing the Pre-Nup) – Cont… These Concepts Apply Universally – Sort of… • Advanced Concepts for Specialty/Tech Companies • Equity Vesting • Invention Assignment • IP Ownership/Assignment

16. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Assets • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Drafting Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors & Exit Strategies

17. Getting the Company Upand Running • Federal Employer Identification Number • Sales & Use Tax License • Bank Accounts • Business Licenses • Insurance • Trademarks & Other Intellectual Property Considerations • Employee/Independent Contractor Agreements • Formation Due Diligence – Founder Concerns

18. Knowing Which Hat You are Wearing

19. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Assets • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Drafting Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors & Exit Strategies

20. Maintaining the Liability Shield • Basic Principle – Owners Not Liable • Piercing the Veil • Preventing Veil Piercing Arguments • Money • Management Using Formalities • Remembering Which Hat You Are Wearing • Take a Mulligan (Ratifying Past Acts) • Sign in Your Official Capacity • Become a Tree Hugger

21. Become a Tree Hugger(Utilizing Subsidiaries) Separating Assets Limiting the Contracting Parties Intercompany Agreements

22. Start-Up Right So You Don’t Have to Shut Down • Protecting Your Personal Assets • Choosing Which Entity to Form • Choosing Where to Form it • Negotiating and Drafting Organizational Documents • Getting the Company Up and Running • Maintaining the Liability Shield • Taking on Investors & Exit Strategies

23. Taking on Investors • Private Offerings (33 & 34 Acts) • Registration Requirement • Unregistered Offerings • Accredited Investors • Anti-Fraud Requirements • Promoting 3Ps Private Offering (New Laws) • Dealing With Angels, VCs & Private Equity Funds • To I-Bank or Not to I-Bank

24. Early Stage VC Investment Trends

25. Exit Strategies • No Exit • Profitable Existence • Joint Ventures • Sale of Assets (Tax Consideration for Corps) • Merger or Sale of Company • IPOs

26. Final Thoughts—Preventing Implosion • Get Help – Do it Right the First Time • Don’t Assume that Fair = Legal • Abide by the Terms of Your Organizational Documents • Get Insurance • Hire a CPA (a good one) • Consider a Part-Time CFO • Be Nice

27. LEGAL ISSUESFOR START-UPS Adam Hull, Attorney at Law ahull@joneswaldo.com Travis Wilson, Attorney at Law twilson@joneswaldo.com