Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
EVALUATION FORM
In order for us to improve our continuing legal education programs, we need your input. Please complete this evaluation form and place it in the box provided at the registration desk at the end of the session. You may also mail the form to CLE Director, NYCLA, and 14 Vesey Street, New York, NY 10007.
Common Issues for Start-Up Companies: Music, Fashion and Tech Start-Ups
Tuesday, February 25, 2014 6:00 PM – 9:00 PM I. Please rate each speaker in this session on a scale of 1 - 4
(1 = Poor; 2 = Fair; 3 = Good; 4 = Excellent) Presentation Content Written Materials
Steve Masur
Joel Schoenfeld
John Trani
II. Program Rating:
1. What is your overall rating for this course? Excellent Good Fair Poor
Suggestions/Comments: ________________________________________________ _________________________________________________________________
A. Length of course: Too Long____ Too Short_____ Just Right_____ B. Scheduling of course should be: Earlier____ Later_____ Just Right_____
2. How did you find the program facilities?
Excellent Good Fair Poor
Comments: ___________________________________________________________
_________________________________________________________________ 3. How do you rate the technology used during the presentation?
Excellent Good Fair Poor
Comments: ___________________________________________________________ (please turn page over)
_________________________________________________________________ 4. Why did you choose to attend this course? (Check all that apply)
Please Turn Over � Need the MCLE Credits � Faculty � Topics Covered � Other (please specify) _______________________________________________
5. How did you learn about this course? (Check all that apply)
� NYCLA Flyer � NYCLA Postcard � CLE Catalog � NYCLA Newsletter � NYCLA Website � New York Law Journal Website � NYCLA CLE Email � Other (please specify) ____________________________
6. What are the most important factors in deciding which CLE courses to attend (Please rate the factors 1- 5, 1 being the most important).
___ Cost ___ Subject matter ___ Location ___ Date and Time ___ Provider ___ Organization of which you are a member ___ Other______________________________________________ 6. Are you a member of NYCLA? ___ Yes ___No
III If NYCLA were creating a CLE program specifically tailored to your practice needs, what
topics or issues would you want to see presented?
NY
CL
A
CL
E
IN
ST
IT
UT
E
COMMON ISSUES FOR
START-UP COMPANIES: MUSIC, FASHION & TECH START-UPS
Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers’ Association, 14 Vesey Street, New York, NY
scheduled for February 25, 2014
Program Co-sponsor: NYCLA’s Young Lawyers’ Section
Program Co-Chairs: Anibal Luque, Esq. and Jessica Hoffman, Esq.
Faculty: Steven Masur, Cowan DeBaets Abrahams & Sheppard LLP; Joel Schoenfeld, Mitchell Silberberg & Knup LLP; John Trani, General Counsel, Carrot Creative
This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 3 Transitional and Non-Transitional credit hours; 3 Skills..
This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 3 hours of total CLE credits. Of these, 0 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law.
ACCREDITED PROVIDER STATUS: NYCLA’s CLE Institute is currently certified as an Accredited Provider of continuing legal education in the States of New York and New Jersey.
Information Regarding CLE Credits and Certification Common Issues for Start-Up Companies: Music, Fashion and Tech Start-Ups
Tuesday, February 25, 2014 6:00 PM to 9:00 PM
The New York State CLE Board Regulations require all accredited CLE providers to provide documentation that CLE course attendees are, in fact, present during the course. Please review the following NYCLA rules for MCLE credit allocation and certificate distribution.
i. You must sign-in and note the time of arrival to receive your
course materials and receive MCLE credit. The time will be verified by the Program Assistant.
ii. You will receive your MCLE certificate as you exit the room at
the end of the course. The certificates will bear your name and will be arranged in alphabetical order on the tables directly outside the auditorium.
iii. If you arrive after the course has begun, you must sign-in and note the time of your arrival. The time will be verified by the Program Assistant. If it has been determined that you will still receive educational value by attending a portion of the program, you will receive a pro-rated CLE certificate.
iv. Please note: We can only certify MCLE credit for the actual time
you are in attendance. If you leave before the end of the course, you must sign-out and enter the time you are leaving. The time will be verified by the Program Assistant. Again, if it has been determined that you received educational value from attending a portion of the program, your CLE credits will be pro-rated and the certificate will be mailed to you within one week.
v. If you leave early and do not sign out, we will assume that you left at the midpoint of the course. If it has been determined that you received educational value from the portion of the program you attended, we will pro-rate the credits accordingly, unless you can provide verification of course completion. Your certificate will be mailed to you within one week.
Thank you for choosing NYCLA as your CLE provider!
New York County Lawyers’ Association
Continuing Legal Education Institute 14 Vesey Street, New York, N.Y. 10007 • (212) 267-6646
Common Issues for Start-up Companies: Music, Fashion
and Tech Start-ups Tuesday, February 25, 2014
6:00PM – 9:00 PM Program Co-sponsor: NYCLA Young Lawyers Section Program Co-Chairs: Anibal Luque, Esq. and Jessica Hoffman, Esq. Faculty: Steven Masur, Cowan DeBaets Abrahams & Sheppard LLP; Joel Schoenfeld, Mitchell Silberberg & Knup LLP; John Trani, General Counsel, Carrot Creative
AGENDA 6:00PM – 6:30PM Registration and Reception 6:30PM – 7:30PM Formation 7:30PM – 8:50PM Entry and Exit Plans 8:50PM – 9:00 PM Questions and Answers
New York County Lawyers’ Association
Continuing Legal Education Institute 14 Vesey Street, New York, N.Y. 10007 • (212) 267-6646
Common Issues for Start-up Companies: Music, Fashion
and Tech Start-ups Tuesday, February 25, 2014
6:00PM – 9:00 PM Program Co-sponsor: NYCLA Young Lawyers Section Program Co-Chairs: Anibal Luque, Esq. and Jessica Hoffman, Esq. Faculty: Steven Masur, Cowan DeBaets Abrahams & Sheppard LLP; Joel Schoenfeld, Mitchell Silberberg & Knup LLP; John Trani, General Counsel, Carrot Creative
Table of Contents Common Issues in Startups Legal Checklist for Startup Businesses Joel Schoenfeld, Mitchell Silberberg & Knup LLP Pre-Startup Founder Agreements 10 Big Legal Mistakes Made By Startups How to Fire a Co-Founder How to Fire Your Co-Founder
Faculty Biographies
Common Issues in Startups February 25, 2014
NYCLA Home of Law
Why are we here? Startup businesses are the new landscape. There are approximately 540,000 new businesses that get started every month in this country (Source: Forbes.com). Especially in New York, there are thousands of new companies that are out to make our lives easier or bring impressive, innovative ideas to the market. However, almost half of these businesses will fail within the first four years, and most of them will do so within the first year. The number one reason for failure in startups is due to lack of knowledge—meaning, poor planning in a variety of areas. Today, we are going to discuss some ways to plan the early decisions that will have a lasting effect on startup businesses in order to provide a successful foundation.
Focus Topic Number 1: What Type of Entity should a startup Form?
First things First: A breakdown of each entity form
An LLC is an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business. The Limited Liability Company Law governs the formation and operation of an LLC. An LLC may organize for any lawful business purpose or purposes.
The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The flexible management structure allows owners to shape the LLC to meet the needs of the business. The owners of an LLC are “members” rather than shareholders or partners. A member may be an individual, a corporation, a partnership, another limited liability company or any other legal entity.
A business corporation is a legal entity separate and distinct from the individual(s) who compose the business. It has rights and abilities similar to those of a natural person. Principal features are perpetual duration, limited liability and easy transferability of interests. A corporation may be formed for any lawful business purpose or purposes. Source: NY Department of State, Division of Corporations
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements: • Be a domestic corporation • Have only allowable shareholders
• including individuals, certain trusts, and estates and • may not include partnerships, corporations or non-resident alien shareholders Have no more than 100 shareholders Have only one class of stock Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
Source: Internal Revenue Service, irs.gov So, which entity should a startup form? These days, most people seem to be drawn to the LLC. But what is the real answer? It depends. What considerations would be best suited for LLC formation? What considerations would be best suited for a C-Corporation? When might it be a good idea to form an S-Corporation? When might it be a good idea to form an LLC that is taxed as an S-Corporation? Is it ever a good idea to be a sole proprietorship or a partnership (general or limited)?
Focus Topic Number 2: How do you protect a company from its Co-Founders?
Though co-founders may be interviewed and hired just like employees, most often, co-founders come together because they are friends that have developed an idea together. As much as friends may believe that they will act honestly, earnestly, and work equally as hard, the truth is that there may be disagreements between them that could lead the startup to financial or operational ruin. What protections can you put in the operating agreement or founders’ agreement to protect all co-founders from future disagreements? One of the most important clauses in founder agreements inevitably becomes the vesting schedule. This details the method by which ownership in the company is solidified over the course of the relationship. The terms of exit for founders should be discussed and prepared for at the beginning of the company’s existence. Vesting refers to the portion of ownership in a company, whether it is actualized or not. Vesting schedules allow company owners to transfer equity in the company while ensuring that the equity recipients still meet their obligations and are incentivized to remain with the company by delaying their ownership over a period of time. Cliffs: Cliffs allow you to test a hire or partnership without an immediate equity commitment. The parties agree on the equity amount and vesting period immediately, but if they part ways during the cliff period, the leaving party may receive an accelerated but limited amount of equity, or no equity at all. Aside from any protections in early agreements, what else might be used to ensure a complete and tidy break between founders? What steps can be taken to fire a co-founder when there are no protections in the company’s agreements?
Focus Topic Number 3: How and When Should you Hire new Team
Members?
Get Creative: Different types of employment relationships
The practical effects of certain clauses in employment agreements can decidedly sway the court’s view of the employment relationship. These clauses should be considered and scrutinized before memorializing any relationship with a potential employer. Employer-Employee Relationships Determining the employer-employee relationship is a multi-factor test. Courts usually focus on the level of control over the employee and the form of compensation. Employees typically are paid a salary, an hourly rate of pay or draw against future commissions with no requirement for repayment of unearned commissions. Employees may also receive fringe benefits, including an allowance or reimbursement for business or travel expenses. Employees may be granted equity in the company in the form of stock options or grants, but their role is often distinguished from the true founders of the company. Courts also look at the nature of the services in relation to the control required. Independent Contractors Statutory law does not define an Independent Contractor. We must look to case law to make the determination. Independent Contractors are usually in business for themselves and make their services available to the public. The real distinction between the employer-employee relationship and the independent contractor relationship depends primarily on the level of supervision, direction and control exercised by the person engaging the services. Independent Contractors are usually free of these restrictions and courts look to the actions of the parties rather than what the relationship is called to determine the contractor’s independence. Source: Department of Labor, New York State Whether or not a person is allowed to engage in services with other employers or companies can be a deciding factor in defining the employment relationship. Independent Contractors are usually free to engage in any employment, and attempts
to limit their employment can be seen as factors weighing towards an employer-employee relationship. What are the common pitfalls of Independent Contractor relationships? What considerations suggest that an Independent Contractor relationship would be best under the circumstances?
The Details: Key Clauses in Employment Agreements
Sometimes the people that founders want to attract to a business will be incentivized by equity. These individuals take risks and invest in the success of the company, thus aligning their goals with that of the founders. Other times, certain factors will dictate that a traditionally defined employer-employee relationship should exist. There are different ways to incentivize new team members. This can be done through equity incentives or non-equity incentives. Equity: New hires can receive an ownership interest in the company. In the beginning days of a company, startups often exchange ownership for “sweat equity,” where a team member can or has provided a significant amount of value to the company through work or ideas. Stock Grants or Options: Issuing restricted grants of company equity or options to buy stock at a later time are favorable for employers and employees in many instances. Beside the employer’s avoidance of an upfront cash outlay, it provides tax benefits and profit incentives for employees. Deferred Compensation: If you can convince a potential employee to accept deferred or delayed compensation without granting equity, this is a valuable option for every employer. This can be done through bonuses or increased salaries at performance milestones.
Regulatory Compliance Employers are required by federal law to comply with certain regulations. First, employees must be eligible to be hired, namely through Employment Eligibility
Verification. Employers and employees are required to fill out Form I-9s for their new hires in the United States. Employers also need to register any new hires with the New Hire Reporting Program. Employers are required to register for Unemployment Insurance when they meet certain conditions of liability. New York employers can register online by filing out the Form NYS100. Source: Department of Labor, NY State. All employers must report certain identifying information about each newly hired or rehired employee working in New York state. The requirement to report new hires is based on the definition of an "employer" under federal income tax withholding. Newly hired or rehired employees who will be employed in New York state must be reported within 20 calendar days from the hiring date of the employee. These reports can be sent in New York State either online via the website www.nynewhire.com or by submitting a copy of the employee's Form IT-2104, Employee's Withholding Allowance Certificate. Sources: Department of Taxation and Finance, NY State; United States Citizenship and Immigration Services. What documents should be completed when hiring a new employee? What tax filings must be completed? How do payroll issues and withholding taxes affect a company’s operations?
Legal Checklist for Startup Businesses
Joel Schoenfeld
Mitchell Silberberg & Knupp, LLP
12 E. 49th St., NY, NY 10019
1-917-546-7712; [email protected]
I. Legal Entity: Do you want a corporation? A limited liability company? A
partnership? A sole proprietorship? You must ask yourself what are the liability,
tax and governance issues about which you are most concerned?
A. C Corporation
1. Legal entity with obligation to file its own taxes and with defined
direct liability
a) Shareholders own the company
b) Officers run the company day-to-day
c) Directors “oversee” the strategic direction of the company
and the officers efforts
d) Greater ability to raise capital
e) Significant compliance and filing costs
B. Limited Liabil ity Corporation
1. Controlled by Operating Agreement
2. “Members,” not shareholders
3. Pass through of profits and losses to Members per Operating
Agreement
4. Shield to individual liability
5. Greater ability to raise capital
6. Start-up drafting, filing and publication costs
C. S Corporation
1. Not subject to corporate tax rates except for certain capital gains
and passive losses
2. Pass through of profits and losses to shareholders
3. Limited to 100 shareholders (no partnerships, corporations or non-
US shareholders) and only one class of stock
4. Shield to individual liability
D. Partnership
1. Based upon an Agreement or Contract
2. Each individual is taxed separately
3. Personal liability (for your own and your partners’ acts) – no shield
4. Limits ability to raise capital
E. Sole Proprietorship
1. Individual has personal tax obligation and full liability for business –
no shield
2. Limits ability to raise capital
I I . Adequate Capitalization: Do you have enough funds to start your business?
Do you need investors? How are you segregating your personal funds from your
business funds? Have you selected your accountant and banker?
A. Work with an accountant
B. Do not comingle personal and business funds!
C. Raising Capital
1. Debt or Equity
a) Debt - retain equity control, but have principal and interest payment obligations and borrowing conditions
b) Equity - no repayment obligations, but give up a portion of ownership and become subject to fiduciary duties to minority owners
2. Equity Financing
a) Public offering - Must register with the SEC to sell to any purchaser. Registration process takes 2 to 3 months and is expensive
b) Private offering - To friends and family - privately negotiated sales to persons with preexisting relationship to issuer
c) To any purchaser - Reg D Rule 506(b) - must provide a private placement memo meeting minimum standards and can only sell without general solicitation and advertising, again to persons with preexisting relationship to issuer
d) Private Offering - To accredited purchasers - Reg D Rule 506(c) - May only sell to accredited investors, but may use general solicitation and advertising, including internet web sites and are not required to use a specific offering document
e) Anti-Fraud Rules - all offerings must be accurate, can’t include any misstatements of material facts or omit any material facts needed to prevent statements made from being misleading
f) Form D - Must file notice of sales under Form D with the SEC within 15 days of first sale. Also must file with states in which sales are made.
g) State Regulation - Friends and family offerings must generally comply with state law or fit under a state law exemption
h) Regulation D offerings made in compliance with its requirements are preempted from compliance with state law
i) Accredited investor - an individual whose income exceeds $200,000 per year for the past two years and likely for the current year, or $300,000 with the person's spouse, OR net worth of $1 million excluding the persons residence. Also corporations, trusts and other entities not formed to purchase a particular offering with assets over $5 million.
I I I . Government/Regulatory Issues: What sort of government or regulatory
issues must you overcome to start your business? Have you qualified to do
business in the state or county, or even perhaps city? Do you need business
permits? Are there any zoning issues to consider? Does you operation have any
special business requirements?
A. Qualify company to do business in state of principal office – are there
Publication requirements?
B. Other business permits; city business licenses/taxes
C. Zoning Issues?
IV. Employee Issues: Do you have employees or independent contractors? Do
you have unpaid, illegal interns? Do you plan to give employees an ownership
interest once they have established their worth to the company? Do you intend
to set aside equity/membership interests for an employee stock option plan? Do
not grant options before finalizing a stock option plan and obtaining a valuation.
Set-up a vesting schedule, if necessary
A. Split equity/membership interest
1. Set aside equity/membership interests for employee stock option
plan
a) Do not grant options before finalizing a stock option plan
and obtaining a valuation
2. Set-up vesting schedule, if necessary
B. Purchase Insurance Policies – D&O, General Liability, Personal Injury, Long
Term/short term disability, workman’s compensation, etc.
C. Work-Made-for-Hire, Non-Disclosure and Proprietary Information
(including trade secrets) Agreements
V. Design, Clear and Register – AND Use!
A. Trademark; Trade Name/Trade Dress
B. Domain Name
C. Copyrights
D. Patents
VI. Basic Legal Forms
A. Shareholder Agreements
B. Buy-Sell Agreements
C. Operating Agreements of LLC, Partnership Agreement, etc.
D. Work-Made-for-Hire, Non-Disclosure and Proprietary Information
(including trade secrets) Agreements
E. Employment Letter Agreement
F. Independent Contractor Agreement
G. Purchase/Services Agreement
H. Employment Manual – PTO and Severance policies
I. “No Child Labor” Certification Form for Vendors
J. Privacy Policy? Put Written, Legal Privacy Policies in Place!
How To Fire A Co-Founder By Elad Gil The two biggest reasons startups fail is running out of money and founding team implosions. One Y Combinator founder I spoke with felt that about ~20% of startups in his batch blew up in the first 9-12 months after entering YC due to founder issues. When you find yourself in a situation where the working situation with your co-founder has degraded you need to decide: A. Is this something you can work out? Every founder relationship has its problems. Can this one be fixed? Have you given feedback to your co-founder before? How did they react? Sometimes having a series of frank conversations is the best way to fix things. Do not proceed to step (B) unless you have had a few frank, non-emotional conversations with your co-founder about the issues.
B. Who should leave? If this situation cannot be worked out, which co-founder should leave? Should you resign? Or should one or more other founders be asked to leave? The likely outcome to (B) depends on the relative leverage each person has. Who is essential to the continued life of the startup? How much equity does each person own? Who has a board seat and who[m] does the board support? If you are "equal founders" in terms of equity and board seats, you will need to have a series of frank conversations about how to separate. If you have a strong lead investor, they may be invaluable in helping the you and your co-founder(s) work through this negotiation.
How To Fire Your Co-Founder Here are potential steps to take if you need your co-founder step down:
• Discuss the situation with your other co-founders, if any. Come to a consensus on letting the other founder go.
• Discuss the situation with a handful of key stakeholders (e.g. your lead investors or advisor). You should be smart about what sort of conversation you have depending on your relationship with the person. Some investors you can ask for advice on the whole situation. Others you should only contact after you have taken action. A strong lead investor can help you negotiate with the founder you are firing and provide a fair outcome for both sides.
• Determine what is fair.
• What does your co-founder care about? Would they prefer to hold equity or cash?
• How early in vesting are they? If the conversation is happening pre-cliff, one option is to let them keep the portion of equity they vested so far for time spent. [1]
• If they have been part of the company for an extremely short amount of time, and they would be valuable in this role, you can convert them from a founder to an advisor with a much smaller, vesting, equity stake.
• Alternatively, you can buy out their equity to date for some cash. If they are pre-cliff, then they have no shares for you to buy. In this case, you can focus instead on paying out a cash severance to reward their help in getting the company up and running. Consult with a lawyer on all your options and their implications [2].
• The most extreme situation would be to wipe them from the cap table entirely with no compensation. If they are post-cliff, there are often clauses in the original stock agreements that if someone committed fraud or otherwise put the company at risk that they lose their shares automatically.
• Board seats. If the founder is on the board, you usually want them to step down and make a clean break. You should think this through relative to (a) their relationship to you, the other team members and investors and (b) relative to the board dynamics you already have. Can you still fill the other common seat with someone else? This may be the de-facto outcome already written into your original company legal documents.[3]
• Cash compensation / severance. You should decide how much salary to pay out as part of letting them go. This may depend in part on how much they are making per month, as well as the cash position of the company.
• Figure out the situation with your lawyers. Have the paperwork for termination / non-solicitation / etc. ready before the conversation with your co-founder.
• Prepare for key conversations. Write out the logic of why the founder is getting let go, what will happen to them (board seats, compensation, etc.) and when you plan to do it. You can use this as a guide for the conversations below.
• Take swift action. Meet with your co-founder and discuss that they are being let go. If you have communicated issues effectively with them up until this point, they should be well aware there are problems.
• Communicate to various stakeholders. Determine what to communicate. What is the agreed upon story you and your co-founder will share? If it is a contentious break up, there may not be a common story to tell.
• Determine how to communicate to each of the following parties.
• Your team (more below) • Investors or advisors.
• You will want to call or tell some investors in person. Others can be notified via email as part of your regular company updates.
• Partners or customers (if e.g. the co-founder was their main point of contact).
• Press (only if needed). I know a large number of startups that are down a founder but the world at large has never noticed. While losing a co-founder can be very intense for you, don't project your emotions more broadly. Most people may never realize a change has happened.
• Team communication. • Many employees may confuse losing a co-founder with a loss of
belief in the startup itself. The co-founder may have hired a part of the team and be friends with them. Be proactive in addressing employee concerns in a straightforward manner. Bring in investors or advisors to show their ongoing belief in the company. If the co-founder is leaving on good terms (or had proactively resigned), you can potentially have them be part of the conversation or host a goodbye party for them that same week.
What To Do If You Are The Founder Asked To Leave If you are the founder who has been asked to leave:
• Try to remain rational. This is really hard emotionally and you will be upset. Stay calm and dig into the facts, the financial offer they are making you, and the true leverage they have over you. Is your firing a done deal that has full board approval, or posturing by your co-founder who has no real leverage? What is objectively best for the company?
• Get a lawyer. • If it is a done deal, decide what you think is fair compensation-wise,
and how to best communicate this back to the company. • Note: don't confuse the company's money with the founders'
money. E.g. if they company raised a few hundred thousand dollars, you don't deserve "my share of it".
• Determine which company stakeholders (investors, advisors) you want to reach out to over time in order to keep the relationship(s) intact. You don't need to do this immediately.
• Don't worry about your reputation being hurt. Savvy investors see founding team issues all the time and understand early teams don't always survive the stress of a raw startup. You now have one startup beneath your belt and a lot of things you have learned for the next one.
• Act in a mature and thoughtful way on the way out. Life is not a one-act play.
• Yes, you will be able to raise money again, hire people, etc. etc. • Don't dive back into things immediately. Take some time to clear your
mind and get your emotions and life back in order before deciding what to do next. Unfortunately, founder relationships, like marriages, often don't work out. The key to avoiding a break up is to make sure you and your co-founder are aligned up front. Keep communicating openly throughout the relationship as issues arise. Some great founders have gotten fired in the past. Hopefully the above is helpful in navigating this painful and stressful change. Notes [1] If it is a contentious break up, you may not want them to own equity as they can cause trouble for you down the line. This is the reason to make sure you have vesting in place for everyone associated with the company, whether you raise convertible debt or equity. If co-founding a company is a marriage, the vesting is a pre-nup. [2] I am very obviously not a lawyer, and can't give any legal advice. [3] Another reason to read your legal docs and not just gloss over them! Source: Elad Blog, http://blog.eladgil.com/2013/01/how-to-fire-co-founder.html
How to Fire Your Co-Founder BY ANDRE GHARAKHANIAN It can be the most emotionally draining process a start-up ever goes through. Here's how to keep a cool head, and take the right legal precautions. Start-up life is dynamic and unpredictable. Even the most logically constructed founding teams can have difficulty withstanding unstable market conditions, an aggressive change in the product development roadmap, or a significant pivot in the business model. The reality is that you may one day be faced with a need to terminate a co-founder. I have advised clients from the sidelines through dozens upon dozens of founder and executive terminations. I thought I had a good idea of what the rest of the management team was going through in making this difficult decision. In carrying out my law firm's first employee termination a few years ago, however, I finally learned first-hand how heart wrenching and emotionally draining this process can be. My own experience helped me to understand exactly how important it is to keep a cool head throughout this process and adhere to a few basic rules. Decide fast, because every bit of time matters. Any experienced entrepreneur will tell you to "fire fast." Start-ups are all about execution and culture. Keeping on a co-founder who is no longer adding value can really stifle progress and hurt your team's morale. There are also ownership consequences with delaying the decision: your co-founder's shares will continue to vest. Dragging your feet can further dilute the rest of your team.
I would caution you, however, to be cognizant of intervening events when making the decision. You might not, for instance, want to terminate your only technical co-founder in the final week of a game-changing integration with your first big reference customer. It is a balance—you don't want to wimp out on the decision, but you should be aware of how it will impact every aspect of our organization and its external relationships.
First, get a separation agreement.
Founders often have a tendency to want to "make the headache disappear" by simply terminating the co-founder and getting back to work. Bad idea. Future investors and acquirors are going to want things legally buttoned up. A nightmare scenario for them (and for you) involves the disgruntled, terminated co-founder who comes back to sue the company.
By entering into a separation agreement with the departing co-founder, you give them slightly more than what they are entitled to—perhaps some vesting acceleration or a few weeks' pay. In exchange, they will execute a release—a promise not sue the company. Having a valid release in place makes everyone around the table at financing or acquisition time feel a lot more comfortable.
There are some situations where foregoing a separation agreement can be very low risk—but don’t make that decision on your own—let your counsel help you gauge that. Your default option should be to always execute a separation agreement.
Find a voice of reason. More than anything, your counsel can help serve as a voice of reason during this emotionally charged time. They can also help make sure that you cover all of your bases. Employment laws are tricky. Your state has various rules around last day's pay, accrued vacation, etc. Company counsel can make sure that all of the details are handled properly. Yes, you want this process to end quickly, but you also want it to end as smoothly as possible.
Source: Inc. Magazine Online
Faculty Biographies
C O W A N ,
D E B A E T S ,
A B R A H A M S &
S H E P P A R D L L P
t: 212.974.7474New York
Beverly Hills
STEVEN MASUR
PARTNER
s m a s u r @ c d a s . c o m
d o w n l o a d v C a r d
p r i n t b i o t o P D F
ADMITTED
NEW YORK
Practices
Corporate Formation,
Finance and M&A
Technology
Venture
Industry Sectors
Digital Media
Fashion and Apparel
Games
Music
Social Media
Software / Apps
Steven Masur focuses his practice on corporate finance, M&A,
intellectual property, strategic transactions, entertainment and
new business concepts. He has over 20 years of experience
advising digital media and entertainment clients on their corporate
and intellectual property transactions and day-to-day business
issues.
Mr. Masur brings unique strategic business experience to CDAS.
He has counseled enterprise level clients including Shazam, Virgin
Mobile, Liberty Media, Yamaha, Nielsen Buzzmetrics, Bob Vila and
Conde Nast Publications in corporate, digital media, and new
business matters. He has also helped clients in a wide variety of
early stage businesses, including mobile, games, digital music,
film, publishing, advertising, retail sales, software and hardware to
achieve breakthrough results.
Mr. Masur’s transactional experience includes a wide variety of
deals in angel and venture capital finance, mergers and
acquisitions, joint ventures and other strategic transactions in the
Page 1 of 3Steven Masur | Cowan, DeBaets, Abrahams & Sheppard <span>LLP</span>
2/20/2014http://cdas.com/attorney/steven_masur/
US and abroad. He is passionate about helping new businesses
break through to the mass market, and frequently assists clients
with identifying and formalizing partnership opportunities with
Fortune 500 and celebrity brands. Mr. Masur is especially
knowledgeable about mobile, internet, social media, emerging
content distribution models, e-commerce, games and mobile
payments.
Mr. Masur serves a variety of corporate and nonprofit boards and
industry associations, lectures and regularly writes about major
issues in venture capital, emerging businesses, entertainment law,
technology and corporate strategy.
E M P L O Y M E N T
Cowan DeBaets Abrahams & Sheppard LLP
Masurlaw LLP
Sabin, Bermant & Gould LLP
Government Accountability Project Inc.
B A R A D M I S S I O N S
New York
E D U C A T I O N
Colby College, 1984
American University, Washington College of Law, J.D., 1993
P U B L I C A T I O N S
Steven Masur, Collective Rights Licensing For Internet
Downloads and Streams: Would It Properly Compensate Rights
Holders?, 15 J. Internet L. 3 (November 2011).
BOOK: Steven Masur et al., Collective Licensing at the ISP Level
(David Mazur dep. ed., 2010).
Steven Masur, What’s the Point in New York’s LLC Publication
Requirement? VOL. 13, NO. 1, NYSBA BUSINESS LAW JOURNAL
(2009).
Steven Masur and David Mazur, Veoh: Increased Protection for
Service Providers, Or a Trapdoor?, 15 No. 5 INTELL. PROP.
STRATEGIST 1 (2009).
Page 2 of 3Steven Masur | Cowan, DeBaets, Abrahams & Sheppard <span>LLP</span>
2/20/2014http://cdas.com/attorney/steven_masur/
Ready, Handset, Go: The Rules of Mobile Marketing,
BILLBOARD, July 19, 2008, at 8.
Steven Masur and John Maher, Mobile Phone Text Message
Spam: Building A Vibrant Market For Mobile Advertising While
Keeping Customers Happy, 7 Va. Sports & Ent. L.J. 41 (2007).
Playing to Win: Negotiating Tips for Mobile Game Development
Agreements, 18 No. 2 NYSBA ENT., ARTS AND SPORTS L.J. 64
(2007).
Confidentiality in a High–Tech World, GP SOLO, July/August
2007, at 42.
A Good Deal More, MOBILE ENT., May 2007, at 37.
A S S O C I A T I O N S A N D A C T I V I T I E S
PGA NMC (Producers Guild of America, New Media Council)
ITAC (New York’s Industrial and Technology Assistance
Corporation) – Board of Directors
Institute of Play – Board Member
IAEL (International Association of Entertainment Lawyers) –
Executive Board, Editor of IAEL Book: Collective Licensing at the
ISP Level (2010)
Transmission Institute – International Advisory Board
NYSBA – Business Law Section – Executive Committee;
TechVenture Law Committee – Former Chair; Entertainment, Arts
and Sports Law Section
TechVenture Law Committee – Former Chair: Entertainment, Arts
and Sports Law Section
Harvestworks – Board of Directors
MOUSE (former board member)
IGDA (International Game Developers Association)
NYTM (NY Technology Meetup) – Community Committee, Law
and Business Liaison
NARM (National Association of Recording Merchandisers) Digital
Think Tank
MEF (Mobile Entertainment Forum), Americas – Former Board
Member
NYCLA eMIPS (Entertainment, Media Intellectual Property and
Sports Law Section) – Co-Founder and Former Chair
ABCNY Entertainment Law Committee
Page 3 of 3Steven Masur | Cowan, DeBaets, Abrahams & Sheppard <span>LLP</span>
2/20/2014http://cdas.com/attorney/steven_masur/
Legal Expertise
Licensing and protecting digital rights globally; negotiating and drafting various music industry label, artist,publishing and songwriter contracts; international intellectual property; mergers & acquisitions.
Representative Matters
Represented Major Music Publisher in complex acquisition agreements.Represents Major Record Label on digital and copyright issues.Represents a major online entertainment company in acquisition and intellectual property matters.Represented major cable television network in transactional matters.Represented two of the largest venture capital funds and one of the largest investment banks in digital musicinvestments.Represents start-up websites and app developers.
Partner - New York
Phone: (917) 546-7712Fax: (917) 546-7682
Practice Area
Entertainment & New MediaFashion IndustryIntellectual Property & Technology
Industry Focus
All aspects of the global music and new media industries.
Education
New York Law School, J.D.Syracuse University, B.A.
Joel M. Schoenfeld - Attorneys - Mitchell Silberberg & Knupp LLP ~ Ful... http://www.msk.com/attorneys/Joel_Schoenfeld
1 of 2 2/24/2014 10:05 AM
Court Admissions
New York
Publications and Presentations
Speaker, Bankruptcy and Copyright Assets, NARM (March 2012)Speaker, Creators vs. Corporations: Copyright Termination and Royalty Accounting after the Eminem Case,NARM Entertainment & Technology Law Conference Series (November 2011)Speaker, Getting in Sync with Section 115, CMJ Music Marathon and Film Festival (October 2011)Speaker, Bankruptcy/Collections – Enforcement of Rights, ABA Forum on the Entertainment and SportsIndustries (October 2011)Speaker, Copyright Termination Issues, Copyright Society of the USA Annual Meeting (June 2011)Speaker, Privacy/Information Management and Digital Lockers in the Clouds, State Capital Group AnnualMeeting (October 2010)Speaker, The Developing Storm of Copyright Termination: Who Wins, Who Loses, and How Will It ReallyWork?, New York Entertainment Law Conference (September 2010)
Professional, Business, and Civic Affiliations
Adjunct Professor of Law, teaching Entertainment Law and Music Law courses; New York Law School
Other Career Experience
Former Chief Legal Officer & General Counsel, Dimensional Associates, N.Y.; Former President and CEO,Dimensional Music Publishing, N.Y.Former General Counsel, eMusic.com, Inc.Former Principal, Schoenfeld Consulting/Fabric (Digital Rights Consultancy), N.Y.Former General Counsel & Senior Vice President, Business Affairs, Worldwide, BMG Entertainment, N.Y.Former General Counsel, Recording Industry Association of America (RIAA), Washington, D.C.
MITCHELL SILBERBERG & KNUPP LLP © 2014
Joel M. Schoenfeld - Attorneys - Mitchell Silberberg & Knupp LLP ~ Ful... http://www.msk.com/attorneys/Joel_Schoenfeld
2 of 2 2/24/2014 10:05 AM
John Trani is General Counsel for Carrot Creative (a VICE Media company), a full-service, creative digital marketing agency located in Brooklyn, NY. Carrot ideates, designs and builds campaigns for some of the world's most innovative brands (like Red Bull, Target, Home Depot, Bravo, Jaguar, Wilson Sports, MTV and Disney). His practice focuses on: Intellectual Property (Trademark + Copyright), Partnerships, Licensing/Technology Agreements, Mergers & Acquisitions, Employment Law, Content Review, Advertising Compliance, Sponsorships, Social Media, Contests & Sweepstakes, Commercial Litigation. He received a BS from Boston University School of Business Management and a JD from Brooklyn Law School.