Legal Mistakes Made by Entrepreneurs

A few observations:

1. Founders are much more aware of 83(b) elections today than they were in 2003 when this piece was done and failure to file these on time is much less a problem today than it was then.

2. The biggest problem by far among early-stage founders that is not mentioned here is failure to assign IP into the company at the time of formation when shares are issued. This is commonly overlooked when founders take a do-it-yourself approach. Normally, it is easily cleaned up but, in cases where disputes have arisen, it is a painful and expensive problem to deal with.

3. I would add as well trying to "do it yourself" without even consulting with a good lawyer to get strategic guidance. This can lead to problems that are easily avoided at small cost by consulting up-front with a lawyer, even if you intend to defer hiring a firm in the earliest stages (see, e.g., for an example of what can go wrong as a founder candidly discusses why "incorporating my startup [in Delaware] was my worst mistake": http://news.ycombinator.com/item?id=2399139).

As a point of comparison, here is a link to a similar list (equally good) done by Scott Walker and posted on HN a while back: http://news.ycombinator.com/item?id=1418300 (as to which I made a detailed comment touching on LLCs, Delaware, vesting, and tax).

In general, founders are much more savvy about legal startup issues today than when this piece was written but it is always helpful to review the major issues as a double-check when starting.

That being said, There are times when I know an NDA is well thought out, and necessary, but this is the exception, not the rule.

#10: Failing to incorporate early enough.

#9: Issuing founder shares without vesting.

#8: Hiring a lawyer not experienced in dealing with entrepreneurs and venture capitalists.

#7: Failing to make a timely Section 83 (b) election.

#6: Negotiating venture capital financing based solely on the valuation.

#5: Waiting to consider international intellectual property protection.

#4: Disclosing inventions without a nondisclosure agreement, or before the patent application is filed.

#3: Starting a business while employed by a potential competitor, or hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets.

#2: Promising more in the business plan than can be delivered and failing to comply with state and federal securities laws.

#1: Thinking any legal problems can be solved later.

Even having the trademark might not help you if you face a well funded foe but it helps. We weathered the rebranding but it slowed us down and was very costly.

However, there's one significant error regarding international patents I want to correct.

There's no single patent application for the European Union. What there is is a single European patent application through the European Patent Convention, which is independent of the EU and has an overlapping but not identical set of member nations, as well as extension agreement nations (that typically eventually transition to member nations), and that recently also started establishing patent validation agreements without extension agreements (the first being Morocco).

International patent prosecution is very complex, but the one thing to definitely remember is just to talk to your attorneys about international patents at least a few months prior to one year after the initial filing date of any patent applications.

I've had numerous start ups and successful ventures since the age of 12, and to date (I'm currently 17), it's always a burden to know I'm held back from incorporating etc.. as nothing I sign is legally viable.. therefore making it hard for me to play by the rulebook.

Of particular note is you have 30 days from the date of the stock purchase to file. I miraculously remembered this on the 27th day.

The rest are all promotion of spending lots of money on legal services even when you really should not be and there is no benefit to doing so.