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welcome everyone this is karen applegrin with the zions bank business resource center and we're excited that you've joined us today for the first in a series called the legal 4-1-1 operating a business today we'll be focusing on business basics and we have some great presenters from holland and hart we're really excited to partner with them to bring this their subject matter expertise legal is such an important piece of operating a business we want to remind you that there are two other sessions this month next wednesday august 12th at the same time 11 to 12. holland and heart attorneys will be presenting on the topic of cyber security again on wednesday august 19th from 11 to 12 holland and heart attorneys will present unemployment law all of these sessions are complementary and it's only us this is only a small piece of what designs bank business resource center provides to the business community we offer other workshops if you visit our calendar zionsbank.com brc workshops you'll see other events happening such as our linkedin strategies class tomorrow from 11 to 1. and we also offer complimentary one-on-one business counseling so whether you bank with zions or not you can make an appointment to talk about getting pla help with business plans financial projections or learning more about financing options so without further ado because we have a lot of content to cover today i'd like to to introduce you to the attorneys who are presenting from holland and heart lauren prue fauser and craig demire and i'll let them take it away thanks karen um we're excited to be partnering with zions for this presentation today um like karen mentioned we're gonna dive into a bunch of content regarding kind of your legal basics for starting an entity and why you might be thinking about legal issues that are coming up early on in the company's history there will cover a lot of different topics and just kind of glance over those issues that are at the forefront of pretty much every startup kind of legal legal questions that might be coming up and if you have additional questions please feel free to of course reach out to craig or myself there's also a q a option where you can submit questions using the sidebar we're going to ask that nobody asks verbal questions just so we can respond to them at the end of the presentation and we'll leave about 10 or so minutes to make sure that we're addressing those and then once we've had an opportunity to go through our slides we'll kind of hit any of the questions that you all might have craig and i are both corporate attorneys over at holland and heart as karen mentioned and we work with companies of all different sizes we work with folks who are just starting and setting up a business to more mature companies that are looking to you know sell or acquire other companies so our space definitely runs the gamut of everything from um single member entities to entities with tons of shareholders and we love working with companies of all different shapes and sizes so hopefully today you can find at least a couple points to take away and maybe think about applying to the business that you're running or the operations that you hope to pursue in the future and like i said if you have any questions don't hesitate to reach out to either of us and karen of course at the zion center as well and we'll be sure to address those questions and and get you the resources that you need so craig is going to start us off with kind of an outline of the topics today and then we'll dive into content as we go so thanks all for attending okay you want to take it from here yep i'm on board lauren thank you very much um so we are going to start as we hop on um this this is a brief outline like lauren said so we're we're going to kind of slowly slowly work our way through these these main topics first just discussing what types of entities are available to you as business owners or or prospective business owners and we'll identify a couple of key characteristics and hopefully you'll be able to you know quickly and easily put yourself in one camp or the other depending on what business you're running or hoping to run we'll also just briefly discuss forming an entity um just a couple of you know relatively easy steps to to to form an entity and then there are some background stuff which which will kind of tighten your control and and better understand what business you're running will cover the legal documents that are required or at least highly advised related to forming and operating a business and then as lauren said we will discuss just some pitfalls and what what are some kind of tips and tricks to avoid them so the main question or at least the first question in our slide is do you need an entity um i will presumptively answer for most of us and say the answer is yes and here are some reasons why you might need an entity um so if you have recently or already have been have initiated business office okay you're running a business um asset protection is extremely valuable and entities um one of their one of the primary value adds is protecting either your personal assets or the businesses assets you can kind of segment things and and provide some liability protection if you're uh in the interest of raising capital often those folks who are looking to inject uh capital in the marketplace or or invest in specific businesses have a certain expectation of the types of businesses they're they're investing in and that usually relates to a type of entity chosen or or they prefer to see something like a little more quote unquote mature or maybe more sophisticated um businesses and entities um succession planning is a not always fun topic but it is a necessary topic um in the personal context obviously but also uh specifically within the business context to make sure that the hard work you're all putting in now can and continue to grow for generations and and your ideas can continue to uh rise um if you are in the situation where you're hiring employees or engaging in contractors um it's uh having an entity is really valuable um in terms of making sure everyone's on the same page of who the actual employer is um and making sure that everyone understands what's going on and and what everyone's roles are um and then i had spoken to this prior um in terms of the initiation of business operations uh little dot up at the top but um forming an entity is an opportunity to clearly define a prior handshake deal in today's world a lot of people come up with a lot of great ideas and they'll get so excited they'll just dive right in and start just immediately running a business and that's good to capitalize on that excitement and and really try and get to market quickly and and just kind of take advantage of having a great idea however there are some necessary questions that need to be answered and especially if you form business with other business partners um the sooner you handle those questions uh the more certainty everyone can operate under and hopefully you will head off some uh i will say not fun conversations down the road um so that uh kind of forming the entity and and setting up some of the corporate documents is is a is a real way to get everyone on the same page and and um minimize potential roadblocks down the future uh and as i said earlier you know if you want your business to quote-unquote take the next step um you're you're able to visit you're able to present yourself as a more mature or established company if when let's say you know potential investors are you know come come calling you're able to offer you know sincere and consistent corporate records um and things like that so have forming and and efficiently running or rather operating an nc can provide a lot of value way down the line even even if you don't foresee that opportunity coming up so we usually counsel our clients our prospective clients to maintain an accurate corporate record book just in the off chance that the most amazing opportunity in the world comes out you're ready for it as opposed to you're going to spend a whole bunch of time and money in the last 15 minutes and be in a much more stressful situation than you needed to be so that is uh covering some of the situations in which forming and operating etsy would provide value to use business owners let's just briefly discuss the types of entities that are available so the key here is as you can see kind of the three i would say tiers or or pillars of entities the middle tier both of which begin with limited and the far right tier which has corporations at the top uh those provide limited liability protection and as we quickly jump back to uh slide five as you can see asset perfection is one of the uh primary value adds that that an nc can provide to as business owners the entities in the middle and on the far right will provide that asset protection um the entities on the far left uh are technically unformed entities as in they are not formal entities aka you didn't file the required documents with the state you're operating in however um those entities will still exist and uh but you won't have the liability protection um offered in say a limited partnership a limited liability company or a c corp or an s corp so um as i had mentioned earlier some folks come up with an idea let's say with that what uh let's say with one more business partner and they get really excited and they run straight to market and and they're and they're already riding the range they would have technically formed a general partnership and although it is unformed both of the partners involved are liable for anything the business does and they are liable to uh and um [Music] and they are personally liable which is another thing which is which is um you know a bit scary in my mind um so all the all of their personal assets would be uh quote unquote on the hook a sole proprietorship is in a similar vein but let's just say hypothetically i had an idea and went straight to market and and and was running the entire company by myself i would be operating a sole proprietorship despite the fact that i had never actually formed the form the company in let's say idaho and so personally my assets would be uh um or pardon me rather i would be liable to the personal extent for the operations of my sole proprietorship so those are kind of default entities the ones on the far left the general partnership and sole proprietorship which if you don't do anything and you just operate a business then you automatically fall into one of those categories and those are uh not categories you want to be in moving to the center column limited partnerships and limited liability companies so lps and llc's lps are a little more rare they're commonly seen or at least we commonly see them in terms of uh investment companies like venture capital firms and things like that they're they're they're routinely pardoning those uh types of businesses routinely utilize the limited partnership entity um in contrast the llc is much more common um and that's for a number of different reasons so first off um it allows you to choose apartment an llc allows the owners to choose how the llc will be taxed so either either it will be taxed as a separate taxable entity or the taxes will quote unquote flow through the llc and hit the owners and and depending on where you are and what the business you want to run um either option can be a viable option um the second reason and and there are quite a few reasons why why llcs are incredibly common um is that the default rules for llc's can be contracted around uh pretty aggressively and and what i mean is that there there is an llc um act in uh provided by the idaho state legislature and it basically sets a bar where um at a minimum llc's can't do x can't do y can do z um however if you form an llc and you uh prepare one of the operating agreements you can basically um kind of tailor fit how you want to run your llc to your specific business and your specific ownership group um and so llcs provide a lot of versatility and you can really tailor things directly to who you are how you want to run and where you want your business to go so llc's much more common um very versatile entities and they also provide that added advantage of you can choose what type of tax regime you operate under lp's much more rare although although there are situations in which they would be the right entity for the right business group so i wouldn't write them off completely but the llc is uh much more common moving to the far right um under the corporations tab uh most common here is the c corp um and it is characterized by being a separate taxable entity so for example when taxes are levered on to a c corp uh the c corp itself will be taxed and then any funds that flow from the c-corp to shareholders they would be taxed at that level as well so there's a double taxation rate which is unfortunate there are ways to kind of work around that things like that the c corp is much more common um it's it's uh it can provide a lot of value in terms of raising capital as i mentioned earlier quite a few investment groups prefer to invest in quote unquote mature companies sophisticated companies and having an entity be a c corp kind of presents that especially if you're able to back up back it up with um you know sincere corporate governance things like that also uh if you're hoping to take your company public um usually having at a c corp is the most efficient way uh to go public um s corpse very similar c corps however they are much more regulated um in terms of their ability to raise capital also in terms of their ownership so it has to have less than 100 owners they all have to be american citizens i believe lauren if i'm incorrect there please feel free to correct me um and there are some more regulations surrounding s corp so in the right situation choosing an s corp over a c corp is um can provide a lot of value to you as business owners however the c corp similar to the llc is much more common uh an entity choice for um the majority of businesses um public benefit corporations um are simply put a corporation where in their charter or in their um in their formation documents they are uh they state that they will um you know donate a certain amount of time and money and and focus the purpose of the corporation towards some sort of public benefit could be climate change you know conservation efforts things like that but it is uh those efforts are connected to the corporation and that is where a lot of if not all of its focus goes um so depending on what type of business you're running or depending on what your goals are that could be the right vehicle for you and then lastly there's the non-profit corporation which can make a lot of profit however all the profits are reinvested in the corporation um and they uh have a tax-free status at least if you qualify under under the 501 t3 for the irs so depending on what your goals are that could be the right motive or a pardon that that could that could be the right entity choice as well um so there are quite a few options as you can see available um as a kind of a high level summary i would do your absolute best to avoid the entities on the left um and depending on how you're hoping it uh and and in the nancy in the middle of the llc is much more common and if you don't write the c corp is much more common however depending on who you are what you want to do and what you're hoping to accomplish the other etsy choices um are potentially the right choice for you uh lauren do you have any uh other points to add or or no that's great thanks craig okay perfect um so now we're just going to briefly uh discuss the formation basics of actually forming the entity we discussed earlier obviously we're going to be avoiding the ones on the left pillar so we're talking el you know limited partnerships limited liability companies so kind of as a rule there's two sets of documents for those entities first off you have the external facing document which is what everyone can see um going through the uh the state where it's formed that state secretary of state website and then there's the internal document which usually you can't see and that's kind of a manual on how to writ how to operate the company for the formation bit just just just for this topic this is all going to be about the external facing documents so for example uh if you're hoping to start a business in idaho you would just click on that link at the bottom or you would simply google you know forming a c-corp in idaho and uh you would you would find find a way to to file your your documents online um the primary question as you can see by that second little bullet is you need to determine the right state in which you want to form your entity as a rule you usually look at either delaware or you look at the state in which your primary place of business is going to operate for most of us being in idaho that will be idaho however you know there is there is a chance where maybe wyoming is the state that that uh let's say you manufacture all your products things like that so you would just sub out idaho or wyoming now delaware uh has has uh inserted itself with the conversation um because they have a lot of business and corporate friendly laws on their books and also um their judiciary system has a long and well established list of case law relating to corporations and business issues so way back when um a couple of kind of forward-thinking delaware legislators kind of built their state in a way that was very conducive to entity being formed there and just by virtue of that war entities were formed when lawsuits were filed they would be filed in delaware state courts and things like that and that kind of just grew and grew and grew so now basically when you're looking to form your business you the the rule although not always is you'll either form in delaware or you'll form in the state in which you have your primary place of business for most of us it's going to be idaho so it's just kind of one or the other also this this won't shock most of our audience but all 50 states do not agree on how they should title this formation document so as you can see delaware calls them a certificate of incorporation idaho is articles of incorporation others call them certificate of formation corporate charter things like that kind of all over the place um primarily means the same thing uh i will just briefly go over an example um as i said these are external facing documents and they're usually really sparse um because anything that requires a lot of substance or anything like that you can just place in the internal facing document if it's a corporation those are the bylaws or if it's an llc that will be the operating agreement or the company agreement and as i said any of that stuff that's kind of should be placed in the quote unquote manual on how to run the company so for example an idaho articles incorporation will list there's only about six or seven articles the first one lists the name of the corporation the second one lists uh the amount of stock that has been authorized the third article will cover the registered agent and that's uh necessary in the external facing document in case for lawsuits or for other reasons you need to contact the corporation you can go through their registered agent in this set of articles they have a specific article relating to how the shareholders vote that is not required um article 5 covers a limitation on liability article 6 covers indemnification and that's about it so these this example set of articles that i looked at was about a page and a half and as i said they're they're routinely very sparse um and most things are are uh if they can be will be placed in the bylaws of corporation or the company or operating agreement of an llc and that way that that stuff kind of stays in house so to speak um oh and then also uh forgot to mention just really just just really quickly um so you form and let uh let's say you form your company in the state of idaho um and and that's because delaware was the right choice or whatever um and you want to do a substantial amount of business let's say an organ so you form an ido but let's say you have a major manufacturing plant in an organ um as part of that process you need to quote unquote have a foreign qualification in oregon and that's a very similar process to filing for the articles of incorporation but it's simply saying uh your company which is formed in idaho does more than kind of haphazard or random business organ but but there will be kind of a consistent blood business and therefore um you would apply for foreign qualification which is pretty easy to get um and you just need to maintain that so long as you're doing business in and and with the state of oregon so keep that in mind if you are just if you're just forming a business and it's just going to be in one state and you're very local you probably don't need to worry about that um but if you uh you know plan on shipping products across multiple states or you plan on opening opening you know different subsidiaries in different states i would just keep it in mind that you will likely need to apply for and receive foreign qualifications in those states as well so the paper trail can grow pretty drastically depending on how successful you are which would be a good problem to have finally or let's let's just briefly discuss the legal documents for formation as i discussed earlier right the top document on each of these tabs articles for corporations or certificate of formation policy those are those external facing documents and that so kind of everybody can see at a high level how those businesses run and understand the key characteristics the next tier down the bylaws and the operating agreement for the corporations and llc respectively like i said that's kind of a road map or a manual on how to operate the company those are usually very lengthy or they can be depending on how regulated you want the ownership of your company to be they also can be you know nine pages in a word document depending on how much you want to you want to just leave up in the air so it's all it all kind of falls on how you hope to run your business and things like that um and then there is uh this final tab so there's the you know you're taking minutes at meetings and things like that or there's consents required inter um if the business is um taking action that that is of a substantial nature um so on the left you've got uh board of directors which is the primary um management group for a corporation uh and those are elected by the stockholders and the stockholders ultimately own the company so if the stockholders were own you know 100 of the stock they'll elect the board of directors and the board of directors will actually manage the company with stockholders hopefully keeping an eye on the board of directors and providing governance at a high high level uh under the llc's um you can choose to be either member managed or manager managed uh if it's manager manage llc the members similar to the stockholders will elect that manager and then um just provide governance over that manager so it is a way to delegate the responsibility of operating the business um and a lot of that just falls on uh who the primary business person or business people are and how involved they want to be things like that so there is a lot of um there is just a lot of variables um in terms of uh [Music] um one quick thing just to briefly touch on um llcs require a lot less of action and documentation just to maintain the company um and i'm gonna just briefly discuss corporations as a way to illustrate this point so corporations every year have to file an annual report with the state in which they're formed so for idaho you would file an annual report on the iowa secretary of state website you also have to have an annual meeting of the stockholders in which they can confirm the officers and board of directors for the following year things like that and llcs don't need to do that they can if they wish to you know maintain diligent corporate records and i would i would advise that as you operate your businesses if your business is either corporation or llc or or anything mentioned above if you're reviewing let's say allowing another investor in or or taking a substantial action i would uh highly advise that you document that somehow so it can just be in a consent um so for example the board of directors briefly discussed creating a manufacturing facility in oregon they discussed you know all possible alternatives and the pros and cons and the board believes that this that this is the right action for the corporation you know the board approves this approves of this proposal um that is a way to show that the board is taking you know the necessary thought and care required to ensure that the corporation is taking the right actions so things like that that type of stuff at least the annual report and annual meeting are required of corporations llcs don't necessarily have that requirement however you document those types of you know substantial discussions or things like that um i think about all it for this first initial introductory period lauren is there anything you would like to briefly discuss regarding corporations or llc no i think i'll cover it in the next couple slides greg thanks perfect sounds good all right so let's cruise right ahead to the next slide all right um so craig did a great job at providing an introduction as to what the structure of a lot of entities will look like and why you might want to think about having an entity and as you said general recommendation is if you want to protect yourself if you want to protect the business partners you might be working with oftentimes that's what really leads to the decision of yes we need to incorporate yes so having a having a business entity there are a bunch of tasks with that because it it requires treating the entity as a separate a separate entity beyond yourself right you're no longer using your own personal bank account you're using a bank account for the entity because the entity is the the being doing business not not yourself um so part of the part of the list of startup tasks that we want to talk about just today and and keep in the forefront of your mind as you as you begin your business first and foremost is getting an ein so a lot of you have probably seen an ein or maybe applied for an ein before if you've run a business before but it's an employer identification number it's super easy to grab from the irs's website and it is basically the social security number of a business it's what you use to file taxes it's how you have a record with the irs and it's important because it gives you a registration number that you can use associated with any of your business filings oftentimes you'll be required to submit an ein when you do a secretary of state filings you certainly have to submit it with your taxes and then anytime you're registering for state regulatory filings there are often requirements that you submit your ein on that as well so think of it like your social security number for yourself you want to protect that number and make sure that you have it early on and it's usually required to do a lot of different types of business filings this is something that your attorneys or your accountants can help you apply for but it's also something that's really easy to grab yourself so if you're looking to kind of maintain a economic way of registering your business i encourage you to apply for an ein on your own second tier of decision making after you've applied for that ein is your tax election and i'm going to focus here on corporations for most of this uh presentation but i will make a note here about llc's right you can elect to be taxed as a corporation or a partnership as an llc it's one of the advantages of of having this entity but you need to make that tax selection sooner than later and so working with an accountant becomes really important same thing with a corporation if you're deciding between an s corp and a c corp you want to have a good advice early on about whether or not it makes sense to make that election there are always ways to transition entities meaning you may convert from an llc to a corporation later on so nothing is set in stone but making smart accounting decisions and working with a tax advisor early on is something that's so helpful because it means you're saving costs in the long run right it's all about being efficient as you start and thinking more forward looking not thinking about being reactionary to the situation that you're in at the time but thinking okay if i make this tax selection now how does this implicate me in the next year so making a tax election is very important oftentimes you need to register for sales tax numbers those are usually associated with certain states and so a lot of our clients are in the tech space and are working with an analysis on sales and use taxes and so they need to do an analysis of where they need to be paying taxes on a annual basis and on a state-specific basis so this is another area where it's really important to get good advice early on so you're making the right elections in those specific states to pay taxes and registering appropriately with each state taxing authority because if you aren't doing that right away over years you can you know find out that you've been delinquent and paying taxes not knowing that you were not knowing that you were instructed to pay taxes in those particular states because of whatever product you're selling or whatever services you're providing and as a result can be subjective fines and penalties associated with the state and getting good tax advice on those particular issues and having your registrations appropriately filed in each state can be really helpful early on because it will save you money in the long run next item is making sure that when you are setting up an entity that you've got a really good idea about the ownership structure and i want to talk a little bit about the two different types of ownership structures so with llc's you've got members as craig mentioned and those ownership structures can be set up as percentages so member interest on a percentage basis the whole company is 100 membership interest and how many members hold what percentage right or they can be set up as units and units are the equivalent of shares in an llc and they're a nice way to delineate between um sections of ownership right as opposed to thinking in percentages so a lot of times it makes sense to start with units if you anticipate growing significantly because that number will always stay the same the percentages will automatically fluctuate without requiring adjustments if you set those as percentage interest then you're always kind of balancing the scale to make sure that you add up to 100. for corporations like i mentioned you have shares and so you want to get those initial share share issuances done early on because it's important to establish that the company has an early history and that those shares have been purchased for whatever the fair market value is at the time of issuance and as you can imagine the more mature company is the more expensive those shares will become and so the sooner you can get those share issuances done for founders the better you're going to save yourself money in the long run and it also provides you an opportunity to make sure you establish what the ownership of the company is sooner than later last item here just on initial startup tasks is funding for a foreign qualification if you're planning to act in other states and the reason that this is important is because if you are holding yourself out as doing business in other states so if i am a a business that has least office space and has employees in idaho but i've chosen to form a delaware corporation because i anticipate being a venture backed startup i have to register in idaho as a business because i need to show the state of idaho that i have foreign qualified there i'm holding myself out as doing business in idaho i have a duty to let the state of idaho know that i will be operating there and so anytime you are leasing space you have a significant number of employees as opposed to contractors you need to start going through the analysis of whether or not it makes sense to pay an annual fee to that state and if you're requir d to register there in order to do business in that state and this is one where it's a kind of a combination of both legal and accounting advice and it can get a little tricky if you start seeing your operations expand beyond your home state so it's one where you want to get good advice early on and as opposed to having a fine from some state authority that says hey you haven't registered to do business here and yet you've been leasing a huge building and employing tons of people here you know that that's a problem for us we need you to be a registered entity and paying your annual registration fees um because the states won't attract the the business that's coming in and out of their state so moving on beyond the initial startup tasks there are a slew of other legal documents that are important to kind of keep an eye on as you grow and as you become a more sophisticated business venture so right at the top of the list is one that i get asked about a lot from startups so hey you know i want to issue stock options to employees or i want to talk about issuing profits interest units if i'm an llc to employees i want to provide incentives for these employees or service providers to stick with the company how do i do that and the first item is setting up an equity incentive plan or profit interest unit plan and issuing awards to the employees or service providers in a way that provides them with incentive to continue working with the company and it's a great alternative to offering additional cash compensation right a lot of folks are are tight strapped businesses early on and so they think stock options are a great way to incentivize employees to build a more valuable company and i can get into a lot of the nitty-gritty details here but it's something that you have to have in place before you issue um before you issue equity to service providers and or employees as a form of equity um or or incentive compensation the next item is an advisory board an advisory board is not your board of directors not that governing body that focuses on the management of the entity of a corporation it's actually a more informal board that has some parameters set around it and they're oftentimes industry specialists who are providing specific advice to companies and helping advise kind of on important relationships that may be helpful to establish an advisory board is a great way to have an informal relationship with somebody that maybe has a service a service incentive associated with it so we often have advisory boards set up for corporations and they'll offer stock options to those folks because they're service providers and it's just a nice way to have a formal relationship with somebody that's less formal than the board of directors the next item is probably the the most common document that we help startups with early on and that's coming up with a great form of employment agreement or offer letter and offer letters are more common in the world that we kind of work in they provide they outline the description of the job the compensation being offered and any equity incentive awards and also set out some parameters of hey these are the things you must do in order to be employed with us so that's one area that i think is really useful to get some advice on early on because you can use that as a template along that same line as a consulting agreement and having a good consulting agreement it can be helpful whenever you're thinking about engaging a third party to provide consulting advice to the company but maybe is not necessarily going to be an employee non-disclosure agreements are also pretty common and we have kind of mutual non-disclosure agreements that companies will often enter into and we also have unilateral non-disclosure agreements that you may use with somebody who's just learning about the business and thinking about pursuing a business opportunity raising capital is an area that i've saved a couple of slides for at the end but there are a lot of documents involved with fundraising so it's important to know that you can't just go out and accept funds from folks and call them owners or or members or shareholders you have to have it properly documented so that you can show basically have a paper trail showing how that ownership started ip protections are another hugely important area because most companies value is often tied up in some of the intangible assets like patents or trademarks or copyrights and making sure those items are actually legally protected is key and that anything created for the company the on behalf of employees or consultants is protected can be really really important as well and then this last item falls into the it protection category and it's called a form of confidential information and invention assignment agreement and it's a mouthful but it's attached to the offer letter and it's basically a document that says hey you're going to be an employee or you're going to be a consultant as a result of that we want all of the work that you're doing to be owned by the company and it's standard right if they if you're employing them and they're providing services on your behalf as an entity you have you have the right to own that intellectual property that is developed in their work capacity so that document needs to be signed before somebody starts as an employee or as a consultant and it's important because it really protects the ownership of the intellectual property of the company and ensures that any developments by that individual will be assigned to the company going forward next up i want to start going into legal pitfalls and give you kind of the basic pitfalls that we see come up on a routine basis a lot of these legal pitfalls are really about thinking on a forward-looking basis thinking about prevention as opposed to addressing problems as they arise and that expression you know hindsight's 2020 a lot of times we can always a lot of times we can set individuals and entities up for success just by forecasting a little bit do you anticipate having you know other business partners involved if so let's get an agreement on the table now as opposed to trying to negotiate later on which that's my first legal pitfall is really working with partners and how you get a written agreement in place before you actually come to a problem where the agreement has to govern so our general advice to folks who are thinking about working with business partners or other owners of the company whether that's an llc or partnership or whatever type of entity it might be is to ensure that you've negotiated this document this governing document that says hey here are the disputes that are going to arise here's how we'd like to handle them when you're on good terms right it's always easier to come to an agreement when you're on good terms with somebody as opposed to later in the trajectory of the company when things have already gone south trying to come up with an agreement with a business partner that you no longer want to be associated with is difficult so establish that governing document early on in your history before you go through a business divorce legal pitfall number two is this ip protection area we have so many companies who say hey i've been working with this consultant he or she is refusing to assign whatever intellectual property whether it's code whether it is a fancy trademark that's been developed as part of a branding product they're refusing to assign it to the company they're just holding ownership over it and whether it's because of a payment dispute or whether it's because of some other issue that has come up from working with somebody developing intellectual property on behalf of the company it is a lot harder to again enforce any intellectual property rights that you have without having an agreement in place that says this intellectual property has been developed under a work for hire arrangement meaning this consultant has developed the intellectual property on behalf of the company and has agreed to assign it to the company after it's been developed and so having those ip provisions reviewed by somebody who has the expertise to say yeah this ip protection is really important we want to make sure the company owns what it thinks it does is key to having the assets that the company really thinks it does right all those intangible intellectual property items or assets that the company owns are only as valuable as they are protected so make sure that protection's in place early on legal pitfall number three is we have a lot of early stage companies that make the mistake of having founders or early early employees of the company do things in their individual capacity as opposed to the capacity of acting on behalf of the entity and what do i mean by that a common example is that we'll have companies who think they own their domain names but in actuality their founders registered for the domain names in their own individual name so the company doesn't own it sure the founder you know might have done it thinking that the domain name would be owned by the company but in actuality it's held by the individual so making sure those bank accounts are open in the name of the entity signing contracts with the entity's name um any intellectual property needs to be registered in the name of the company not an individual those sorts of simple things where you're signing on behalf of the entity in your official capacity are really important legal pitfall number four is equity this is another common one that comes up for a lot of early stage companies we want all issuances of securities meaning any sort of membership interest any sort of units any sort of shares can be issued in compliance with security laws the sec has a right to investigate all different types of security issuances and their authority extends to any security that's issued and securities comes in all different securities come in all different shapes and sizes so work with an attorney as soon as you're thinking about issuing securities because you want to be sure that you're complying from the get-go with securities laws tax tax laws and also making sure that you have good documents showing what the ownership interests of of the individual members or shareholders or stockholders really are next pitfall is one that i think just applies to all aspects of startups and that's asking for help i think in idaho in particular we have such a great network of people who are who are always willing to help early stage companies out or even more mature stage companies out and say hey i've made this mistake in the past here's how i would have prevented it going forward there are so many great networks that you can tap into who will often have good professional advice or good advisors that you can work with to save you the trouble of diying things that might have been seemed like a cost savings early on but really turn out to be very expensive problems to fix in the future my example of you know making the wrong tax election that can be really expensive to clean up and fix in the future so having good advice early on about how to properly structure your entity and properly and properly submit your taxes early on are very important discussions to have and very important resources to tap into pretty much everybody i know in the boise business community is always going to be willing to offer you a recommendation for a good resource so that you can at least evaluate the options before you decide to diy something um well the last kind of couple of slides that i'd like to touch on before we you know make some time for questions here are just raising capital it's it's an area like it's really tricky but it's a great area to kind of work with good advisors on so when you're raising capital there are a bunch of different approaches that folks often take so one first and foremost is bootstrapping meaning that you're not going to seek outside capital from whether it's a third party whether it's a whether it's an individual who wants to invest in the company whether it's your friends and family or really formal investors like private equity and venture capital you've decided to go at yourself and to invest your own personal funds into the entity and receive you know equity in exchange for that next up are kind of friends and family those are the really close friends and family of usually the founders who have decided to invest in the entity next level is angel investors the angel investment sizes that i've been seeing have been going way way up and it's just because there's a lot more sophisticated investors who want to invest early on in companies history finally you've got the traditional and non-traditional lenders those would be more like banks or private lending institutions and then venture capital funds which is what i work a ton with and those are folks that are formalized to invest in what we would call like a silicon valley style of company a typical delaware c corp often in a space that has emerging growth companies that are looking to go beyond the next level whether it's an ipo or an acquisition the venture funds are motivated to invest large amounts of funding into them and then finally private equity which is a more formalized often times a more substantial investment than venture capital funds and they'll they can take everywhere from a substantial minority ownership of the company in exchange for a large amount of cash or can take a majority ownership in the company and help kind of run and steer the ship of the company's future there are also alternative sources of capital one of which being grants foundations state and locally federal and state funded programs these are programs that often have like backing from the city of boise or they might have backing from the state of idaho meaning that they may be tied to some sort of public grant program that the state is interested in sponsoring there are also strategic partnerships meaning that a company might partner with another company one being more successful and willing to invest funds in exchange for a company to develop a particular line of manufacturing for them we see that happen a lot those are often called joint ventures and they're great ways to raise capital as well um this slide just gives you an example of some of the types of companies that have been really successful in raising funds and so you know as you as you're beginning your business venture we wish you nothing but the best of luck and hope that you make it onto a slide like this someday in the future um or even on the list of unicorns uh that we all talk so much about so i think with that we'll kind of go to our resources page and let you know that we've got links to all of these various resources that are available in our particular area but just encourage you to get involved with some of these organizations or to reach out to any of us with questions about how you might get connected to the boise community whether it's the startup community or the small business association there are really really good people here who all want to see businesses thrive and survive in idaho and are really encouraging all of you to kind of continue your business venture and seek out the resources that we can be helpful on um and to get good guidance early on so that you can continue contributing to the state and and help us all find success going forward so um let's see that's it so any questions i haven't seen any comes through craig have you seen any uh i have not either um well in that case we'll wrap up a human head back over to care say thank you all so much for attending we've had a great time presenting today and encourage you to reach out with any questions that you may have later on so thanks a bunch karen thank you lauren uh and craig this was just wonderful information and uh there will be a recorded uh version sent to all people all of the attendees today so watch for that in your email um and we also invite you again to come to the next two sessions wednesday august 12 11 to 12 will be cyber cyber security and wednesday august 19th will be employment law so thank you for joining us and watch for an email follow-up thank you you