When you start a company, you’re likely to require financial support from friends, family members, and investors. The legal implications of vesting shares are often overlooked when founding a startup.
But it’s something to consider before you start your company, especially if you plan on staying in the biotech field. Let’s expound on the legal considerations when vesting shares in your biotech startup company.
Intellectual Property and Rights
The most common form of intellectual property used in biotech startup companies is patenting. The benefits of a patent are many and include the right to prevent others from making, distributing, or selling a product containing the patented material.
In other words, patents protect inventors’ rights over their inventions. Patents may be granted automatically when innovation meets the World Intellectual Property Organization (WIPO) standards. Most biotech startups choose standard “first-to-file” protection for their patents because it provides the best protection for inventors. Every biotech startup has to ensure that it does not infringe on another company’s patent before filing any patents of its own.
Patents are crucial for protecting an inventor’s work. They can serve as a valuable tool for getting funding from investors who enjoy significant legal protections in return for their investment in a startup company.
Vesting bylaws are a legal guide that describes how and when an equity stake in a startup will be distributed to its founders and investors. Typically, equity stakes in startups are not given outright to individuals but rather vest over time.
Therefore, a biotech startup’s equity is not owned by any single individual at the start of the business. Instead, each founder owns a percentage of the company’s overall value until they vest their shares of company stock.
A Non-Disclosure Agreement (NDA) is a legal agreement signed by startup founders and employees who have access to personally identifiable information. It is a confidential contract that, among other things, prohibits the disclosure of such goods or information to third parties.
Some companies, such as technology companies, require all new employees to sign NDAs as a condition of employment. NDAs specify the level of information covered by the agreement and how long it can be kept secret before being released or disclosed.
They are used sparingly only after an employee or shareholder has signed a confidentiality agreement with their company. The best way to know if your company requires an NDA is to ask directly or consult your lawyer.
Shareholder agreements are contract agreements used by company owners and investors to set out the terms under which they will own and share stock in the company.
They can also facilitate various types of transactions such as mergers, acquisitions, or financing. Most companies use shareholder agreements to govern stock buybacks and special dividend distributions.
A thorough understanding of your company’s shareholder agreement can help protect you from surprises if your business ever sells, is acquired, or is subject to bankruptcy. You can always talk to contract law attorneys to help you draft the correct agreements.
The basic legal documents listed above are the most common agreements a business will sign with its vendors, employees, and other parties. As a business owner, you should understand these documents because they will help protect your business.
If you are unsure about whether your company requires an NDA or shareholder agreement, be sure to consult with contract lawyers and let them assist you.