In the first of what will become a series of up-close and personal workshop events introducing different topics, UCI Beall Applied Innovation hosted “Common Mistakes and Legal Issues Startups Face.”
Featuring Bart Greenberg, CEO of Pivotal Law Firm, Inc. and experienced angel investor, as the guest speaker, he shared detailed information and case studies on common legal issues that startup companies experience, such as preserving and protecting intellectual property (IP), setting up the correct business structures and partnerships, protecting the company and personal assets and much more.
“This presentation is based upon all of the screw ups and mistakes that we tend to see our clients making,” said Greenberg. “In most situations, they come to us this way and our very first job is to clean them up … to the point where they become fundable.”
The four-hour event included detailed discussions on the various labor laws, hiring and firing employees and contractors, key points and processes to consider when deciding a business structure, protecting ownership of IP, types of entities to consider and the location/state of forming a company and protecting personal assets from creditors.
Opening the discussion, Greenberg highlighted the importance of the startup’s state of formation as well as the business’ classification: small business corporation (S Corp) versus C corporation (C Corp).
“If you’re going to be a startup and you’re putting your own money into it, you may want to strongly consider becoming an S Corp,” said Greenberg. “But if your first financing round is going to be a SAFE instrument or a convertible note, for example, then this option won’t be available to you.”
Although he noted that the “word on the street” is for a startup to incorporate in the state of Delaware as a C Corp, Greenberg noted that it may be more cost effective for a California-based startups to initially incorporate in the state of California and, if and when an investor should require, merge the business into a Delaware corp.
He also discussed hiring considerations, such as employees versus contractors, the legalities behind hiring and firing employees and the need to hire the right employees.
“Avoid the urge to hire people who are free, but who may not be competent,” said Greenberg. “You want the best people helping you through these initial stages, so avoid the urge to hire friends and family because the price is right and avoid at all costs people with checkered pasts.”
Greenberg stressed the importance of protecting IP and how most founders fail to get IP into the company.
“There are two ways we get intellectual property into the company,” said Greenberg. “You either contribute ownership of the intellectual property to the company or some founders desire to retain ownership of the IP in which case the founders will need to license the IP to the company in order to ensure that the startup has the legal right to use the intellectual property.”
This new Applied Innovation series is designed to help innovators, startups and executives – alongside investors and the business community – understand the ins and outs of entrepreneurism, managing a business and commercialization.
This includes workshops on funding, term sheets, legal issues and more. The next workshop will be announced soon.
“It was a great overview of what could go wrong with your company from a legal perspective,” said Weian Zhao, co-founder of UCI startup company Amberstone Biosciences and UCI associate professor of Pharmaceutical Sciences. “I wish I attended this long ago so I would have avoided some of the mistakes I made in my own companies.”
Find out more on Applied Innovation events.
Main photo: Bart Greenberg, CEO of Pivotal Law Firm Inc. and experienced angel investor, talks about the common legal mistakes made by startups and entrepreneurs and how to avoid them.
Photo by: Michelle Mar