Legal and Ops - Legal Wellness Review

1
Quick note: This form is built only for Founders of Delaware C Corps who plan to raise from Venture Capital. If that's not you, sorry--this survey will unfortunately not be aimed at your use case.* This field is required.
I understand! That description fits me.
2
Last thing before we get started; please understand that this is not a complete audit of your legal wellness--until we can understand context, and have the opportunity to ask more questions, we can't give you legal advice that you can rely on!* This field is required.Please click below to indicate that you understand and agree--otherwise, close this window!
I understand this isn't legal advice, and that I shouldn't rely on it without talking to a lawyer.
3
Okay! Which of the following jobs are you working on at the moment?We'll start with that "module," each of which takes about 3 minutes. Move in the order listed below, unless you want to skip a module entirely.
1. Formation / Incorporation & issuing stock to first founders
2. Managing service providers (employees, consultants, advisors)
3. Managing capitalization table & stockholder grants
4. Managing commercial agreements (e.g. MSA, ToS, etc).
5. Privacy & other regulatory matters
6. I'm done! Can I get results and/or talk with a lawyer for free?
4
Do you feel confident your company was properly incorporated, and that Founders' stock grants were properly issued & taxed?* This field is required.
Yes
No / I'm not sure
5
Good stuff! Since you feel pretty confident about your formation & early founder grants, would you rather skip this section, or check it out anyway?* This field is required.Shoutout: If anyone is subject to vesting, make sure they've done their 83(b)s in a timely way!
I'll skip this section
I'll check it out anyway
6
We get it, formations can feel like a heap of random docs. Let's get into some more specifics then.
7
Is your entity a Delaware C Corp?* This field is required.
Yes
No / I don't know
8
There's definitely benefits to other entity types, but...

Just note that VC will usually only invest in this entity type. You can always convert from an LLC--the sooner you do so, likely the cheaper & easier it will be.
9
Has everyone who is meant to be a stockholder executed a "Stock Purchase Agreement" together with the company?* This field is required.This is sometimes called a Restricted Stock Purchase Agreement (RSPA) or Common Stock Purchase Agreement (CSPA) though it can be called anything.
Yes
No / I don't know
10
It's definitely best practice to write out the terms of such an important agreement, especially using a "Silicon Valley" form, and together with a written consent of the board.

Note, securities requirements may apply.
11
Has anyone who received stock subject to a vesting filed a *timely* 83(b)?* This field is required.Timely means 30 days within the board's written authorization to sell the stock. This often coincides with the formation of the company for founding stockholders.
Yes
No / I don't know
12
This is a tough one to fix, but it is fixable, especially if your company's Fair Market Value has not materially changed since you bought your stock. Otherwise, it gets more expensive.

We definitely recommend talking to a lawyer about this one ASAP! There are fixes, but they can get expensive, often because of the tax implications.
13
Did all members of the Board provide written consent to any grants of stock?* This field is required.Usually the consent for the initial grant of stock to founders is included in incorporation material, and often named "Initial Board Consent" or "Action by Board... In Lieu of a First Meeting," or similar. You should see a specific resolution authorizing each stock grant in that (fully executed) document.
Yes
No / I don't know
14
Even if it's not written, if the Board had an oral agreement, some of the damage is mitigated, but it's still best practice to have this in writing--especially before the valuation of your company changes!
15
That's it for formation questions! Which need would you like to turn to next?* This field is required.We'll start with that "module," each of which takes about 3 minutes. Move in the order listed below, unless you want to skip a module entirely.
2. Managing service providers (employees, consultants, advisors)
3. Managing capitalization table & stockholder grants
4. Managing commercial agreements (e.g. MSA, ToS, etc).
5. Privacy & other regulatory matters
6. I'm done! Can I get results and/or talk with a lawyer for free?
16
Are you confident that your service providers (a) have fully assigned your company their Intellectual Property (IP), and (b) are properly classified & reported to the state?* This field is required.
Yes
No / I don't know
17
Good stuff! Since you feel pretty confident about your service provider management, would you rather skip this section, or check it out anyway?* This field is required.
I'll skip this section
I'll check it out anyway
18
Got it, then let's double click into service providers.
19
Has every Service Provider signed something agreeing to (at least) assign IP?* This field is required.In most cases we'd expect to see other terms like Confidentiality, Representations & Warranties, Indemnification obligations, and much more, but assignment of IP is one of the most important.
Yes
No / I don't know
20
Typically you’d use what's called a Confidential/Proprietary Information and Invention Assignment Agreement (CIIAA/PIIAA) together with an offer letter for employees; or a Consulting or Advisor agreement as applicable.

If you get these docs from a credible / mainstream source (e.g. Cooley, Orrick, Clerky, Stripe Atlas), chances are they are at least as good as many peers'.
21
Do any Service Providers now, or did they previously, work another job while creating IP for you?* This field is required.
Yes
No
I don't know
22
Does assignment of IP to your company conflict with their obligations to assign IP to their other employer(s)?* This field is required.
Yes
No
I don't know
23
Are they using any of their other employers' resources and (on the clock) time to work on your company's IP?* This field is required.
Yes
No
I don't know
24
Is their employer both (a) rich enough to easily afford litigation AND (b) aware of the side projects, or tend to be hostile?* This field is required.
Yes
No
I don't know
25
While in most cases this ends up being fine, conflicting IP or a threat of it from someone that can spend you down are higher priorities to resolve.
26
Do you have a clear sense of why any contractors you work with are really only contractors, and not employees?* This field is required.
Yes
No / I don't know
27
Because this analysis is different in every state, and chances of a state audit (for the state to make sure you're properly withholding payroll taxes) are generally smaller than that of big companies, many startups skip this analysis.

The *very* generalized rule is that if you exercise a lot of control over the service provider, tell them their schedule, and/or give them the tools to use, they look more like an employee.
28
Are you withholding state & federal payroll tax on all employees?* This field is required.If you use a tool like Gusto or Rippling, and if you've properly classified employees & contractors (per the previous question), it's more likely you're in good shape here.
Yes
No / I don't know
29
This is a high priority one to resolve, including for any payments you've previously made--the state wants to get paid! And that means, for one, withholding payroll taxes from your employees' pay.

This includes domestic employees, and rules vary in different jurisdictions. Tools like Rippling and Gusto are a great way to help get these done more easily.
30
Do you have a clear sense, for each of your employees, whether that employee is entitled to e.g. overtime, or lunch breaks--i.e. if they are properly classified as "Exempt" or "Non-Exempt"?* This field is required.
Yes
No / I don't know
31
At early stages, all things equal, getting this wrong presents a relatively lower risk of state audit, though it is best practice to get it right--especially if you are potentially worried about the Service Provider bringing a claim that they are owed wage & hour / backpay.

Especially when you have the money to look at this, or before your headcount grows too much, it's a good idea to look at this.
32
That's it for service provider questions! Which need would you like to turn to next?* This field is required.We'll start with that "module," each of which takes about 3 minutes. Move in the order listed below, unless you want to skip a module entirely.
3. Managing capitalization table & stockholder grants
4. Managing commercial agreements (e.g. MSA, ToS, etc).
5. Privacy & other regulatory matters
6. I'm done! Can I get results and/or talk with a lawyer for free?
33
Are you confident that your cap table actually reflects what you (and your stockholders) believe it reflects?* This field is required.In other words, that everything's been done right, that no promised equity is left off, that what you think is unvested is actually unvested--among other reasons that may cause surprises?
Yes
No / I don't know
34
Good stuff! Since you feel pretty confident about your cap table management, would you rather skip this section, or check it out anyway?* This field is required.
I'll skip this section
I'll check it out anyway
35
No problem, we'll walk you through some of the key points.
36
Are you sure that you've never issued more shares than you had authorized (in your charter) or available (net of all grants & reserved in stock option pool)?* This field is required.For example, if your Certificate of Incorporation authorizes 10m shares, then the total number of shares (or options to purchase shares) you've either (a) granted or (b) reserved to be granted under a Stock Option Pool should never have been greater than 10m at once.
Yes
No / I don't know
37
This can get tricky, especially when there are stock repurchases or terminated grants to consider. It's easiest to fix when you fix it before the value of the company changes, and while all your stockholders are friendly.
38
Was the stock (or exercise price for options for that stock) always at least equal to and paid for at its "fair market value", as documented by the Board in a consent (or Unanimous Written Action)?* This field is required.For stock, this value should have been paid by the stockholder (including payment in the form of services--though this takes more documentation, and may have different tax consequences). For optionholders, the exercise price of their future purchase should be paid.
Yes
No / I don't know
39
The Board needs to always have a position about the fair market value of the company (and therefore it's stock). You should be able to defend this position if the IRS ever comes knocking. In almost all cases, you want to issue stock (or set the exercise price of options to purchase stock) in an amount equal to that fair market value.
40
Has any stockholder (or optionholder) whose grant was subject to vesting left the company?* This field is required.
Yes
No
I don't know
41
If you issued actual stock (as opposed to options), did you pay for the unvested stock you repurchased from that stockholder (or optionholder)?* This field is required.In most cases, this does not apply to optionholders; however, note that depending on the "Post Termination Exercise Window" contemplated in your contracts, the optionholder may be able to exercise the right to purchase stock after they are terminated.
Yes
No / I don't know
Not applicable--I issued options
42
Your Restricted Stock Award or other stock purchase agreement may require that you give notice if you want to repurchase unvested stock. In most cases, it will require a payment for that repurchase, often equal to the original price it was sold for, but sometimes a different price. Either way, it's best to clearly document your repurchase of stock (including your payment) so there are no questions.
43
If you've issued options, did you have a 409A valuation in place first?* This field is required.
Yes
No / I don't know
44
Especially for Incentive Stock Options (ISO)--have a 409A valuation in place before you issue any more options. We recommend you get in touch as soon as you can (and even before that 409A) to sort this out, since this is a firm tax requirement.
45
If you adopted or ever increased the size of your Equity Incentive Plan (an "EIP", or a "stock option pool"), do you remember getting your stockholders to provide written consent?* This field is required.If you created the EIP at the time of your formation, you may see a document called a "Stockholder Consent" that authorizes the creation (or increase in the size of) that EIP.
Yes
No / I don't know
46
If you did this through a mainstream & established resource or firm, it's likely you have this. If you don't, get in touch as soon as you can to make sure your existing grants aren't compromised!
47
That's it for capitalization table questions! Which need would you like to turn to next?* This field is required.We'll start with that "module," each of which takes about 3 minutes. Move in the order listed below, unless you want to skip a module entirely.
4. Managing commercial agreements (e.g. MSA, ToS, etc).
5. Privacy & other regulatory matters
6. I'm done! Can I get results and/or talk with a lawyer for free?
48
Are you confident in your template commercial agreement(s) & sales process?* This field is required.
Yes
No / I don't know
49
Good stuff! Since you feel pretty confident about your commercial agreements, would you rather skip this section, or check it out anyway?* This field is required.
I'll skip this section
I'll check it out anyway
50
Cool, let's walk through some questions together.
51
Is your product / service procured by your customers by themselves online (aka self-service)?* This field is required.
Yes
No / I don't know
52
Do they agree to sales terms when they make an account or check out?* This field is required.
Yes
No / I don't know
53
These are two of the most common points at which to ask a customer to agree to terms (at account creation or at checkout).

If your "terms" are just linked in, for example, the header or footer of your website, that's often called "browserwrap". Assuming it has the sales terms (as opposed to just use-of-website terms) you need, we'd still recommend using a conspicuous opt in to the terms to improve the chances your terms are enforced--also known as "clickwrap". Bonus points for calling out some of the key terms, including limitations of liability (and if applicable, arbitration provisions) alongside that clickwrap.
54
When they agree to those terms, are those terms both (1) clearly displayed or linked, and (2) opt-in (e.g. check the box, or click "I agree"), rather than checked by default?* This field is required.
Yes
No / I don't know
55
Clearly linking or displaying the terms, and requiring customers to opt in to those terms--for example, with a click--helps improve enforceability of your contracts, including those terms.
56
Do you use some other written contract--whether in a document or hosted online--to lay out the terms of the agreement?* This field is required.
Yes
No / I don't know
57
Written agreements can be critical to document transactions, and to allocate risk between you and your counterparty. Good fences make good neighbors--we definitely recommend having a (vetted) set of terms signed any time you enter into a transaction.
58
Have you had your template agreements reviewed by a lawyer recently?* This field is required.By "recently", we mean, for example, since any material changes in your business or product(s).
Yes
No / I don't know
59
Simple changes in contracts can have big effects on, for example, the maximum amount of liability you can incur, or whether or not you have to defend your counterparty from lawsuits, so at a baseline, have a lawyer review.

At a *general matter only*, we recommend ensuring that you have a Limitation of Liability provision--to the extent you are more worried about being sued than suing someone else--and narrow indemnification obligations (if the same assumption is true). Your business circumstances & unique risk appetite may necessitate some other provision.

Auto-renew provisions are also common ways to facilitate better ARR, though some counterparties see it as a dark pattern.

Consider using online terms rather than word docs which does sometimes reduce your customers' tendancy to mark it up... sometimes...

In any case, we also suggest refreshing reviews of those contracts any time there's a key change in your business or product--that can mean starting to collect new kinds of data, changing your pricing, or deciding on a new set business terms.
60
That's it for commercial questions! Which need would you like to turn to next?* This field is required.We'll start with that "module," each of which takes about 3 minutes. Move in the order listed below, unless you want to skip a module entirely.
5. Privacy & other regulatory matters
6. I'm done! Can I get results and/or talk with a lawyer for free?
61
Are you confident around applicable government regulations, especially privacy and special industries?* This field is required.
Yes
No / I don't know
62
Good stuff! Since you feel pretty confident about your management of regulations, would you rather skip this section, or check it out anyway?* This field is required.
I'll skip this section
I'll check it out anyway
63
No problem, we'll ask you some more about it.
64
Do you work in or adjacent to a regulated industry?* This field is required.This includes but is not limited to fintech, life sciences, education, minors, import/export, defense technology, sensitive data, cannabis & substances, and more.
Yes
No
I don't know
65
Special rules might apply to you! While we build out more specific answers, we highly recommend you talk to a lawyer to at least get a lay of the land.
66
We know this one is hard because the list isn't complete, and because each industry has different rules.

That said, while we work on a better way to ask, at least the basics can be researched to get you a starting point, but if you're at all unsure (and honestly, as soon as you can afford it), it's worth a quick conversation with a lawyer to get a baseline sense.
67
Do you have a presence that's specific or directed to Europe?* This field is required.
Yes
No
I don't know
68
On this one, the devil is in the details, so it's a hard one to self-diagnose, but if you're capturing sensitive or high-volume personally identifiable data about European subjects, you might consider how to mitigate some GDPR risk. This is a huge regulation, so complete compliance is sometimes unrealistic for limited budgets.
69
Are any of the following true for you? (a) collect data on 100,000 or more California households; (b) have gross revenue > $25m; or (c) derive 50% or more of your revenue from selling data on California households?* This field is required."Selling" can be interpreted very broadly--doesn't have to mean money changing hands!
Yes
No
I don't know
70
California privacy statutes may apply to you! We recommend you get in touch with a lawyer.
71
That's it--you did it! If you'd like us to save your work & recommendations, drop in your email!* This field is required.Otherwise, no worries! Feel free to review the feedback you received by going back through this survey.
example@example.com
72
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There's definitely benefits to other entity types, but...

It's definitely best practice to write out the terms of such an important agreement, especially using a "Silicon Valley" form, and together with a written consent of the board.

This is a tough one to fix, but it is fixable, especially if your company's Fair Market Value has not materially changed since you bought your stock. Otherwise, it gets more expensive.

Even if it's not written, if the Board had an oral agreement, some of the damage is mitigated, but it's still best practice to have this in writing--especially before the valuation of your company changes!

Got it, then let's double click into service providers.

Typically you’d use what's called a Confidential/Proprietary Information and Invention Assignment Agreement (CIIAA/PIIAA) together with an offer letter for employees; or a Consulting or Advisor agreement as applicable.

While in most cases this ends up being fine, conflicting IP or a threat of it from someone that can spend you down are higher priorities to resolve.

Because this analysis is different in every state, and chances of a state audit (for the state to make sure you're properly withholding payroll taxes) are generally smaller than that of big companies, many startups skip this analysis.

This is a high priority one to resolve, including for any payments you've previously made--the state wants to get paid! And that means, for one, withholding payroll taxes from your employees' pay.

At early stages, all things equal, getting this wrong presents a relatively lower risk of state audit, though it is best practice to get it right--especially if you are potentially worried about the Service Provider bringing a claim that they are owed wage & hour / backpay.

No problem, we'll walk you through some of the key points.

This can get tricky, especially when there are stock repurchases or terminated grants to consider. It's easiest to fix when you fix it before the value of the company changes, and while all your stockholders are friendly.

Especially for Incentive Stock Options (ISO)--have a 409A valuation in place before you issue any more options. We recommend you get in touch as soon as you can (and even before that 409A) to sort this out, since this is a firm tax requirement.

If you did this through a mainstream & established resource or firm, it's likely you have this. If you don't, get in touch as soon as you can to make sure your existing grants aren't compromised!

Cool, let's walk through some questions together.

These are two of the most common points at which to ask a customer to agree to terms (at account creation or at checkout).

Clearly linking or displaying the terms, and requiring customers to opt in to those terms--for example, with a click--helps improve enforceability of your contracts, including those terms.

Written agreements can be critical to document transactions, and to allocate risk between you and your counterparty. Good fences make good neighbors--we definitely recommend having a (vetted) set of terms signed any time you enter into a transaction.

Simple changes in contracts can have big effects on, for example, the maximum amount of liability you can incur, or whether or not you have to defend your counterparty from lawsuits, so at a baseline, have a lawyer review.

Auto-renew provisions are also common ways to facilitate better ARR, though some counterparties see it as a dark pattern.

Consider using online terms rather than word docs which does sometimes reduce your customers' tendancy to mark it up... sometimes...

No problem, we'll ask you some more about it.

Special rules might apply to you! While we build out more specific answers, we highly recommend you talk to a lawyer to at least get a lay of the land.

We know this one is hard because the list isn't complete, and because each industry has different rules.

California privacy statutes may apply to you! We recommend you get in touch with a lawyer.