Top 10 Legal Documents for Tech/Social Media Businesses in New York and Elsewhere (Pt. I, 1-5)
When launching a startup involving any technology, (e.g., a software development operation or a social media venture), there are key documents that are necessary to make sure that the essentials are protected and the parties have the right sense of duties and incentives. Doing that will put the venture on the best path to maximizing its value. As part of that process, your startup will ensure the following: (a) the intellectual property is properly owned by the operation, (b) the co-founders are contractually bound to defined frameworks to handle disputes and misunderstandings; and (c) the proper business entity is selected for future financing goals. And now the top ten legal documents:
BUSINESS ENTITY FORMATION DOCUMENTS
Any venture that is serious about what it has to offer the world will set up an entity to give it the best foundation possible. An entity is one of the classic alphabet soup of possibilities (S-Corps, C-Corps, LLC’s and so on). Without an entity it will be next to impossible to raise capital, structure employee incentive plans, and properly house your intellectual property.
1. ARTICLES OF ORGANIZATION (LLC’s Only)
To setup the LLC, you will file, with the New York Department of State, Articles of Organization. A rather “plain Jane” document, it usually begins at a mere 2 pages setting out the name of the LLC, its county, etc. (This process is extremely similar across states including Delaware, which has a similarly styled Certificate of Formation for LLC’s).
2. CERTIFICATE OF INCORPORATION (Corporations Only)
To setup the corporation, you will file a Certificate of Incorporation with the New York Department of State. A rather “plain Jane” document, it usually begins at a mere 2 pages setting out the number of shares and the par value, if any. (This process is extremely similar across states including Delaware).
BUSINESS ENTITY STRUCTURE AGREEMENTS
3. OPERATING AGREEMENT (LLC’s Only)
If the venture goes the route of an LLC, then it will need an operating agreement (important tip: any venture that is venture capital driven, should be setup as a C corporation). An operating agreement sets the metes and bounds of the relationship between the founders. It discusses equity stakes, voting, managerial rights, and other key issues that any partner/founder would want to know about his or her rights relative to the other partner/founders. A detailed breakdown of the operating agreement for the New York Venture and Everyone Else can be found here.
4. BYLAWS (Corporations Only)
Bylaws speak to some of the major corporate basic questions, such as voting, timing of votes, notice requirements, composition of the board, etc. The bylaws essentially set out the basic rules of governance (i.e., internal administration and management.) Startups should not overlook adopting bylaws, simply because bylaws aren’t submitted to the secretary of state.
5. SHAREHOLDERS AGREEMENT (Corporations Only)
If the venture goes the route of a corporation, then it will need a shareholders agreement (important tip: any venture that is venture capital driven, should generally be setup as a C corporation). A shareholders agreement sets the metes and bounds of the relationship between the shareholders. It discusses critical events with regard to how the shares are held, bought, and sold, such as a shareholder’s right to transfer the shares, “rights of first refusal,” and redemptions upon death, disability, etc. This startup document is too often overlooked and can prevent a great deal of confusion and trauma in the event a co-founder leaves the startup.
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