Advice for founders. Many companies today are launched with multiple co-founders. While this is the best option for many startups, it also presents its own potential legal issues. You and your co-founder(s) may not know that the attorney you retain to represent the company does not also represent you or your co-founders’ personal best interests.
Only having the company attorney is fine for many situations. However, as the company grows, the co-founder’s needs and interests may change, leading to some tricky situations. Here are some potential issues you may face:
When forming a new company, it’s common for founders and employees to sign non-compete agreements. These agreements state they will not use their intellectual property or processes to launch a competing company. Non–compete agreements can make it exceedingly difficult to find a new job after leaving the company. However, it’s essential to have an individual attorney’s counsel before signing a non-compete.
Many co-founded companies use the founder’s stock to make sure that each founding member “earns” their share of stock (see “Intellectual Property”). The issues involved in a founder’s stock, especially when a founder resigns for a good reason or is fired without cause, can be complex. An experienced attorney can help each founder ensure that the founder’s stock is set up equitably.
Typically, once a founding member contributes intellectual property in exchange for the founder’s stock, the intellectual property becomes the company’s property. The founder no longer has any personal rights or control over it. As a result, contributing founders may want to retain individual legal counsel to write a detailed intellectual property contribution agreement.
Minority Shareholder Protection
As a company grows and the founders’ interests change over time, relationships can become tense. When this happens, the founder with the least stock in the company (the minority shareholder) can be at risk of termination by the board of directors. Having an individual attorney can help the minority shareholder navigate these waters successfully.
These are just a few of the potential issues that co-founders can run into when launching a startup. This is my advice to founders, if you’re launching a new company with co-founders, consider hiring an attorney who represents your interests rather than relying on the company-hired attorney. Contact EmergeCounsel today for a free consultation.