In our educational episode Yev Muchnik, who happens to be the founder of Launch Legal LLC and an expert in securities transactions, told us about the 5 documents which are absolutely essential for investors. So if you are about to set up your own business — this is a must-read for you!
First document is Certificate of incorporation which shows the world that your company has been incorporated in a jurisdiction and contains some basic information. There is usually a minimum of required information which depends on the law of the state. Normally in order to get this document you just need to go to the states secretary.
The second document mentioned is bylaws. Bylaws are rules which are established by a company to regulate itself. They usually contain some rights for shareholders, and certain rights and restrictions in terms of transferring and clarifying what those rights entitle. Bylaws also spell out the governance provisions, like who will be the board and what is the role of the board of the organisation.
Bylaws are typically signed by the founder of the company or the board although shareholders might have to vote in order to approve the bylaw.
Yev highly recommends you to use COOLEYGO.com as they have the best market terms and generators for startup documents unless you have an attorney that you have been working with who will typically have their own forms of these documents which are usually specifically tailored for your company.
Third document that is commonly looked for by investors is Confidentiality and IP (Intellectual property) assignment. It’s incredibly important especially nowadays due to the rapid development of science and technology and attempts to ensure the company’s intellectual property security.
Confidentiality and IP assignment states that all the intellectual property that’s associated with a startup is assigned, held or owned by the company and not by the individual. Basically it means that all of the information that has been created or that is ever going to be created will be owned by the company.
This document is typically signed by all founders and employees of the company. The agreement creates a confidential relationship between the parties as to protect any type of confidential information of the company during the signers employment.
Fourth document in the discussion is Restricted stock purchase agreement. This agreement is designed to ensure that company’s founders are kept there as long as possible because it makes them subject to a vesting schedule. It means you don’t give all of your founders the equity straight away because then they can leave and go somewhere else that’s why you’d better give them stock incrementally (monthly or annually). In other words, a restricted stock purchase agreement is a type of written agreement that places restrictions on the stockholder’s rights with respect to the shares being used. Generally restricted rights are selling, transferring etc.
And the last document which you will need to provide if creating a startup is Corporate resolution. This one is a form of execution of decisions taken on behalf of the company, either by the board or its shareholders that need to be formalised in some specific way. It may include different kinds of decisions, for example the fiscal year or some good housekeeping decisions.
Decisions, which need to be formalised this way, are usually prescribed in bylaws.
Although it’s quite broad and difficult so we’d probably need to return to it in the following episodes, we hope that now this topic is no more rocket science to you and you’d never let some possible bureaucratic difficulties become an obstacle to your project!
See you in our following episodes!
The article is written by Elizaveta Belinskaya for Fundraising Radio Premium.
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