What Should Be in Your Startup Prenup

Starting a company or entering into a new partnership? While a handshake or conversation over drinks is a common start, putting it in writing is essential to building a solid foundation. Ask any attorney why, and prepare to be regaled with grizzly tales of agreements gone wrong.  Serial entrepreneur Jim Price, in his  article “Why I Always Tell Co-Founders To Sign A Prenup,” explains what a thoughtfully structured agreement can do for a business.

As with a marital prenup, negotiating such an agreement disciplines you as partners – at the beginning while you’re good friends and enthralled with your startup – to reason through what should happen if the partnership doesn’t hold together as planned.  It’s a healthy thing to do.  And if you design your prenup intelligently, you don’t have to anticipate every eventuality; you simply need to set up a thoughtful framework.

While it has become trendy to refer to startup agreements ‘prenups,’ the basic premise remains unchanged. What should be included in this all-important document?

George Khouri, Esq sums it up nicely in a recent article with the recommendation to address what he calls ‘The Big Three: Cash In, Cash Out, and Equity.’

The Big 3: Cash In, Cash Out, and Equity

If you are founding a startup, the three biggest questions you and your co-founders must address are:

  • Who is putting the money in, and how do they get their money back?
  • Who gets to pull money out, and how much can they pull out, and when?
  • How much equity does everyone get, and when do they get it?

Also crucial is planning for failure. It may not be a popular or heartwarming thought when planning a new venture, but it must be discussed. Plan to succeed but prepare for the worst, and make sure all stakeholders are on the same page. How does a partner exit by choice?  What is the protocol to oust a  partner who isn’t contributing appropriately? Planning for unforeseeable circumstances, such as death or a longterm illness, is also key.

Protecting your ideas, products, and brand is part of protecting the partnership. Depending on the nature of your business and industry, consider the pertinence of non-complete, confidentiality and invention assignment clauses.

It is not possible to plan for every scenario. As even seasoned entrepreneurs understand, you don’t know what you don’t know. In this case, though, it is unimportant. A well-crafted agreement can ensure that partnerships and friendships can remain in tact no matter what business may encounter down the road.

 

NOTE: If we can help you with business formation, email our professionals here.

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It’s Official (again), Bitcoin Is Money

Bitcoin has been shrouded in mystery – and the subject of endless discussion – since it was a twinkle in Satoshi Nakamoto’s eye in 2007. According to legend, Nakamoto, on record as living in Japan, may in fact be a collective pseudonym for more than one person. That’s just the beginning. For more on the fascinating history of Bitcoin, click here.

How does Bitcoin work? This brief video is as good as it gets for learning about the first truly decentralized currency in our lifetime.

Want to dig deeper? Marco Santori is a New York attorney specializing in virtual currency. We recommend subscribing to his podcast, The Lawyerist, if you are interested in expanding your knowledge of this space.

Podcast #14: Marco Santori on What Lawyers Should Know About Bitcoin

Why is this relevant now? Monday, U.S. District Judge Alison Nathan ruled that Bitcoin is money, according to an article by Jonathan Stempel. 

U.S. District Judge Alison Nathan in Manhattan rejected a bid by Anthony Murgio to dismiss two charges related to his alleged operation of Coin.mx, which prosecutors have called an unlicensed bitcoin exchange.

Murgio had argued that bitcoin did not qualify as “funds” under the federal law prohibiting the operation of unlicensed money transmitting businesses.

But the judge, like her colleague Jed Rakoff in an unrelated 2014 case, said the virtual currency met that definition.

(Click here to continue to full article.)

This comes after  a decidedly different decision in Miami in July. Tech circles paid close attention to the ruling of Florida v. Espinoza, where it was decided that Bitcoin is not money, at least not yet, and the currency still has “a long way to go.”

Miami-Dade Circuit Judge Teresa Mary Pooler ruled that Bitcoin was not backed by any government or bank, and was not “tangible wealth” and “cannot be hidden under a mattress like cash and gold bars.” Click here for the full article.

I guess we will all have to stay tuned. For now, Bitcoin is legitimized (again).