Noncompetition and Nondisclosure

							  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
                                         7
            Corporate Structure
   Confirm Company Name
   Certificate of Incorporation (DE, MA)
   Authorized Shares
   By-Laws
   Board of Directors
    • Chairman of the Board
   Principal Officers: President, Treasurer and
    Secretary
   Shareholders
   Meeting Minutes
   Votes/Resolutions

                                                   8
           Equity Vocabulary
   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

                                             9
           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




                                 11
         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!


                                        12
         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)
                  14