Startup Due Diligence Legal Issues

Max Effgen,

Below is a fairly comprehensive list of what I look for when I am doing due diligence on a potential startup investment.

Choice of Entity

  • C-Corp, LLC etc.

Capitalization

  • Cap tables accurate?
  • Founders shares vest schedule.
  • Filed 83(b) elections
  • Equity incentive plan
  • Obtained 409A valuation
  • Bylaws, charter, shareholder agreements, stock purchase agreements

Intellectual Property

  • Confidentiality agreements
  • Assignment of invention agreements
  • IP registered under company name
  • Agreements that would limit business
  • Exclusivity clauses, profit sharing, non-compete?

Employment Matters

  • Misclassifying employees as contractors
  • Any employees subject to non-competes from former employer
  • Review hiring forms

Compliance

  • Industry specific laws
  • Licenses, approvals and/or certifications
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