Startup founders are an enthusiastic group. Inspired by a vision of what could be, they often move quickly to make their dream a reality. In the rush to get your startup off the ground, however, be careful not to skip these important preliminary steps:
1. REVIEW YOUR OBLIGATIONS TO CURRENT EMPLOYERS AND CLIENTS.
Whether you are an employee or a consultant, you may have obligations that will limit what your startup can do. Before you launch your startup, make sure you understand exactly what you can, and cannot, do under the terms of any existing agreements you have with an employer or client, and remember that these agreements often contain provisions that will be binding on you, even after you quit your job or stop providing consulting services.
Agreements that may affect your startup plans include:
Noncompete Agreements – These agreements typically prevent a current, or former, employee or consultant from competing with an employer or client during a specified period of time and in a specific location, either directly or through the ownership of an interest in a competing company.
Nonsolicitation Agreements – If you would like to ask some of your coworkers to join you at your startup, a nonsolicitation agreement may interfere with your plans. These agreements usually prohibit an employee or consultant from soliciting fellow employees and consultants, as well as the customers and vendors of an employer or client, for a specified period of time.
Assignments of Inventions – If you signed this type of agreement, you probably assigned all rights to any inventions created during your employment or consulting engagement to your employer or client. Depending on the wording of your agreement, this may include, not only inventions created during work hours, but also inventions created on your own time, using your own facilities and equipment. In addition, you may have assigned any invention you create during a specified period of time after you cease to be an employee or consultant. In some cases, you may even have an obligation to notify your employer or client of all of your inventions for a certain period of time, whether or not those inventions are assigned by the agreement.
Confidentiality Agreements – These agreements typically prevent you from using the confidential information of your employer or client for your own purposes, such as starting a new company.
2. BE CAREFUL ABOUT WHAT YOU DO BEFORE YOU QUIT YOUR DAY JOB.
If you signed an Assignment of Inventions Agreement, you need to be very careful about what you do before you quit your day job or terminate your consulting arrangement. You do not, for example, want to spend countless off-duty hours creating the perfect invention on which your entire startup will be based, only to discover that you do not actually have any rights in the product of your labors. You also need to be careful to comply with any terms of your employment or consulting arrangement that may limit your startup activities. These terms may be found in written employment or consulting agreements, but they may also be buried in employee handbooks or recited in your original offer letter. For example, your employer may have a “no moonlighting” policy that is broad enough to prohibit you from taking any steps toward launching your startup or may have a conflict of interest policy that would not allow you to incorporate your startup or sit on its board of directors.
3. BE AWARE OF STOCK AND EQUITY OPTION DATES AND DEADLINES.
You may have received options to purchase stock or acquire an equity interest in an LLC as part of your compensation package. Make sure you review the agreements granting those rights before you quit your job or terminate your consulting arrangement. You may, for example, want to postpone your departure until a certain vesting date has passed.
You should also be careful to exercise any options before the applicable deadline. While many stock options may be exercised for up to 90 days after an employee’s departure, others must be exercised on or before the last day of employment, a deadline that can easily be missed in the rush to get everything done before you leave a job.
4. END ON A POSITIVE NOTE.
While it may be tempting to tell your boss what you really think of her before you leave, you have much to lose, and little to gain, by doing this. Business relationships you form before you launch your startup may prove to be rich sources of referrals for your new business, while the enemy you make on your way out the door of your last job could be the first person to post a negative review of your startup on Yelp.
This article was written by Janice L. Gauthier, Esq. Ms. Gauthier has an A.B., cum laude, from Harvard University and a J.D, cum laude,. from Harvard Law School. She is a startup lawyer and the owner of The Gauthier Law Group, LLC, a boutique startup law firm that represents founders, entrepreneurs, startups and early-stage businesses in Wisconsin and Illinois. You can contact Ms. Gauthier at 414-270-3855, ext. 101 or by email. To learn more about Ms. Gauthier’s background and experience, visit her Google or LinkedIn profiles.
© 2014 The Gauthier Law Group, LLC. All rights reserved.