1. LEGAL ISSUES FOR START-UPS November 11, 2011 Adam Hull Travis Wilson

2. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Ass  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Drafting Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors & Exit Strategies

3. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Assets  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Drafting Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors and Exit Strategies

4. Choosing Which Entity to Form  No Entity or D/B/A Only  Partnership  Limited Partnership  LLC  Corporation  L3C

5. Taxation of Corporations Double Taxation Dividend

6. Taxation of LLCs Pass Through Tax Treatment Distribution

7. Taxation of S-Corps Pass Through Tax Treatment Plus Dividends Dividend Salary

8. C-Corp vs. LLC  Tax Treatment  Liability Shield  Limitations on Ownership  Types of Equity Interests  Common & Preferred Interests  Options & Warrants (No ISOs for LLC)  Authorized Stock vs. Units  Flexibility

9. S-Corp vs. LLC  Tax Treatment  Liability Shield  Limitations on Ownership  Flexibility  LLCs as S-Corps

10. Tax Issues for LLC Members  Phantom Income  Mandatory & Elective Distributions

11. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Assets  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Drafting Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors & Exit Strategies

12. Choosing Where to Form  Local vs. Foreign Jurisdictions  Authority  Local Filing Requirements  Foreign Filing Requirements  Registered Agent  Jurisdictions to Consider  Delaware  Nevada & Wyoming  Utah  Jurisdictions to Avoid - California

13. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Assets  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors & Exit Strategies

14. Specific Provision to Consider (Preparing the Pre-Nup) These Concepts Apply Universally – Sort of…  Management Structure (Members, Managers & Officers)  Types of Ownership  Rights & Obligations of Each Series  Distributions  Capital Call Obligations  Restrictions on Transfer (ROFR, Drag Rights, Tag Rights & Rights of Assignee)  Buy/Sell Provisions  Indemnification & Advancement of Costs for Managers & Officers

15. Specific Provision to Consider (Preparing the Pre-Nup) – Cont… These Concepts Apply Universally – Sort of…  Advanced Concepts for Specialty/Tech Companies  Equity Vesting  Invention Assignment  IP Ownership/Assignment

16. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Assets  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Drafting Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors & Exit Strategies

17. Getting the Company Up and Running  Federal Employer Identification Number  Sales & Use Tax License  Bank Accounts  Business Licenses  Insurance  Trademarks & Other Intellectual Property Considerations  Employee/Independent Contractor Agreements  Formation Due Diligence – Founder Concerns

18. Knowing Which Hat You are Wearing Fiduciary Duties Compensation Shareholder/Member Fiduciary Duties Compensation Director/Manager Fiduciary Duties Compensation Officer/Employee

19. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Assets  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Drafting Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors & Exit Strategies

20. Maintaining the Liability Shield  Basic Principle – Owners Not Liable  Piercing the Veil  Preventing Veil Piercing Arguments  Money  Management Using Formalities  Remembering Which Hat You Are Wearing  Take a Mulligan (Ratifying Past Acts)  Sign in Your Official Capacity  Become a Tree Hugger

21. Become a Tree Hugger (Utilizing Subsidiaries) The Company IP Profit Stream #1 Profit Stream #2 Property 1.Separating Assets 2.Limiting the Contracting Parties 3.Intercompany Agreements

22. Start-Up Right So You Don’t Have to Shut Down  Protecting Your Personal Assets  Choosing Which Entity to Form  Choosing Where to Form it  Negotiating and Drafting Organizational Documents  Getting the Company Up and Running  Maintaining the Liability Shield  Taking on Investors & Exit Strategies

23. Taking on Investors  Private Offerings (33 & 34 Acts)  Registration Requirement  Unregistered Offerings  Accredited Investors  Anti-Fraud Requirements  Promoting 3Ps Private Offering (New Laws)  Dealing With Angels, VCs & Private Equity Funds  To I-Bank or Not to I-Bank

24. Early Stage VC Investment Trends

25. Exit Strategies  No Exit  Profitable Existence  Joint Ventures  Sale of Assets (Tax Consideration for Corps)  Merger or Sale of Company  IPOs

26. Final Thoughts— Preventing Implosion  Get Help – Do it Right the First Time  Don’t Assume that Fair = Legal  Abide by the Terms of Your Organizational Documents  Get Insurance  Hire a CPA (a good one)  Consider a Part-Time CFO  Be Nice

27. LEGAL ISSUES FOR START-UPS Adam Hull, Attorney at Law ahull@joneswaldo.com Travis Wilson, Attorney at Law twilson@joneswaldo.com