The High Cost of Unpaid Internships for Your Startup

The High Cost of Unpaid Internships for Your Startup

Contracts, Copyright, Employment Agreements, Start-Up
Recently, one of our solo founder clients approached me to draw up some short agreement for some (student) unpaid interns he was considering bringing on with his startup. In this post, I touch on some of the things I explained to him after (very professionally, of course) telling him he might want to re-consider his company's plan. If you're a startup founder considering "hiring" unpaid interns to come and work at your new company, it is important that you understand the potential legal and business risks first. Is your startup's unpaid internship even legal? Yes, many business owners never even bother to consider this first, critical question regarding their new or established internship program. The answer is a very legal "probably, but it depends". While not necessarily illegal in and…
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Investor Wants “Due Diligence” Fees Paid…Up Front?

Investor Wants “Due Diligence” Fees Paid…Up Front?

Start-Up, Venture Capital
Several months ago, a new-ish startup founder (we'll just call him "Chuck") came to my law firm seeking help in reviewing and possibly negotiating the terms of a seed round with their first, outside investor. Chuck was genuinely excited because this investor had proposed (let's just say a number between) $1-2 million for (let's further say) 20% of Chuck's company. A critical infusion of capital that could get the company through a few of the next developmental milestones. However, during our first call, Chuck said something that made my lawyer antennae stand on end. While we were talking about timeframes, he said something along the lines of "yeah, [Mr. Investor] is just waiting for us to sign off on the agreement and to send in our check for due diligence."…
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Is Minimum Wage Required for My Startup’s “Gig” Workers?

Is Minimum Wage Required for My Startup’s “Gig” Workers?

Employment Agreements, Independent Contractor, Start-Up
Startup companies (particularly those in technology or e-commerce) typically rely on independent contractors to fill key roles in the early stages of development, design, and implementation. But not a few startups we advise also rely on short term, part-time, “gig” workers to make their business model go. These workers are typically paid by the end-customer through the startup's platform, which facilitates the transaction (usually for a cut). So, are such companies required to pay or guarantee a certain minimum wage to such workers? Minimum Wage and Arizona Law NOTE: I am only licensed to practice here in Arizona and, as such, this post deals strictly with the law of Arizona. You should research the law of your own state or consult a qualified lawyer in the state where you are…
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Is An S-Corporation Right for Your Startup?

Is An S-Corporation Right for Your Startup?

Business Formation, Corporations, Entity Formation, Equity Incentives, Foreign Corporation, Start-Up
In my Phoenix emerging business law practice, I’m regularly asked to incorporate a client’s startup company. However, I’m often met with a founder's blank stare or “Um…” when I ask them if they wish to be considered a C or an S-corporation. Let me remind the reader that I am not a CPA or tax attorney and that you should always (and I mean always!) discuss your and your co-founders' specific tax situation and business and capital raise goals with your CPA or tax advisor before making a Subchapter S election for your startup. Aren't all corporations just...well, corporations? Not exactly. When you incorporate your startup company, for Federal taxation purposes anyway your new corporation will be treated by default as what is known as a "C" corporation (based on…
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Demistifying Authorized vs. Issued Shares in Your Startup

Demistifying Authorized vs. Issued Shares in Your Startup

Corporations, Entity Formation, Start-Up, Stock Options
Historical Stock Securities by pictavio via Pixabay There is often a misconception among startup founders that the number of shares of stock authorized by the company is the same thing as the total number of shares issued. However, what shares are “authorized” and which are “issued and outstanding” are actually two very different things. What are authorized shares? When I say the words “authorized shares” to my founder clients, what I'm referring to is the number of shares the corporation is allowed (i.e., authorized!) to issue under its articles of incorporation (which may also be described as a certificate of or charter of incorporation, depending on the state the company is incorporated in). In most instances, particularly with our technology startup clients, we incorporate the company with anywhere from 10…
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