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Advice for Startup Founders and Employees – Never Sign Agreements You Do Not Understand

Start-up teams are usually composed of young entrepreneurs untrained in legal dealings, particularly in the countless intricacies hidden within stock purchase, stock option and technology transfer agreements. In fact, that’s precisely why they need competent legal counsel.

We encounter an increasing number of start-up teams that run into legal problems because attorneys they chose at the inception of their operations behave merely as vendors of legal services, instead of as trusted advisors. It is well known that large law firms are in a great position to offer tech start-ups a good “bang” for their buck — knowing that start-ups are typically cash starved, large law firms often charge very little money upfront for their standardized multiple-page contracts with the balance of costs due at a later time. This is easy because such services for start-ups are virtually zero-cost – some firms simply reuse templates and recycled documents.

However, when the ink hits the page, the founders and early employees of start-ups are left in the dark as to the true nature of the agreements. Large law firms do not waste time educating clients who are receiving discounted services about the details within the provided agreements. While it is the right of every person to take the risk of signing a document without being fluent in its language, clients should at least be made aware of those risks.

At Gellis Law Group, whether we represent and deal with founders, key employees or consultants, we thoroughly educate our clients on the ins and outs of every document they are about to sign. Even a one-pager is broken down meticulously. This ensures that our start up team clients do not come to the realization years down the line that the founders or investors got everything while they were left with a fraction of the value of their contributions.

Say for example that a key employee was awarded stocks at an agreed-upon price at the founding of a start-up. What he may not know is that, if he is ever terminated or demoted, the company may have the legal right to buy back these shares for a fraction of the original cost – leaving that employee with almost nothing upon his exit. Was he aware that he may not be getting what he signed up for? Not if his attorneys didn’t thoroughly take him through the contract.