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- Setting Expectations for Founders. Setting and agreeing upon founder roles, responsibilities, contributions and ownership are not legal issues, but have an enormous impact on the company and legal matters going forward. Once set, these expectations become the blueprint for operating your company.
- Obtaining Exclusive Rights to Intellectual Property. Software companies use independent contractors and other third parties for code development. Just because you pay those contractors for their services does not mean you have exclusive rights to the code created. To obtain full, exclusive rights you must enter into a written agreement documenting the assignment of the code or other work created. This requirement also applies to other intellectual property including trademarks, trade secrets and patents.
- Selecting the Appropriate Form of Legal Entity. To protect yourself and limit your potential personal liability, you should set up an entity to hold and operate your business. Most software startups organize as limited liability companies or corporations. Consider the legal and tax implications of each before you organize.
- Restrictions in Equity Issuances. Software startups issue ownership interests in the form of equity to founders, key employees and third parties providing services. The most common interests are restricted shares, stock options and restricted stock units (RSUs). To ensure that these equity interests aren’t wasted, insert restrictions such as vesting or redemption rights into your equity documents so that the company can “claw back” any equity that has not been fully earned.
- Comply With Employment Laws. Each person providing services to a company will either be an employee or an independent contractor. Properly categorizing your team members and entering into documents that require assignment of intellectual property, nondisclosure of confidential information and restrictions on soliciting customers and employees will be important in protecting the business.
- Brand Protection. Identifying, using and protecting a name or mark that identifies your product or service is crucial. Before you expend resources to promote your brand, you need to ensure that you have exclusive rights to use the name or logo, and should consider filing for trademark protection to ensure others cannot use your name.
- Properly Structure Early Rounds of Funding. Startup software companies raise capital from investors to fund early operations and growth. After an early friends and family round, companies progress to pre-seed, seed, and Series A Preferred funding rounds. In pre-seed and seed rounds, companies typically offer SAFEs, convertible notes or series seed preferred stock. It’s important that these rounds be at a reasonable valuation and on terms that are “normal” or “market” to ensure that they don’t create challenges in later financings. Each time you raise capital the company must comply with state and federal securities laws.
- Develop Online Terms and Agreements. As a software company, your customers and others will often interact with your company via your website. To ensure that this is done effectively, you will need to develop and publish terms of use, a privacy policy and possibly other agreements and policies to govern the relationship.
- Understand and Secure Intellectual Property Rights. As a software company, you will be both granting and obtaining certain rights to software source code that is protected by copyright laws. These include the rights to purchase, license and access software. It is important to understand the differences among these rights and to document them in contracts with customers and developers.
- Key Customer Contract Provisions. When selling and licensing your software products, it is important to enter into service or other similar agreements documenting the terms of the relationship. Key provisions that should be included in these agreements are performance warranties, maintenance and support, data rights and limitations on liability.
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