Corporate and Intellectual Property Considerations for Startups Seeking Venture Capital Funding

AuthorChris Sloan - Emily Brackstone
PositionChris Sloan is a shareholder with Baker Donelson in Nashville, Tennessee, and chair of the firm's Emerging Companies group. He assists early-stage, high-growth businesses with business planning and formation, venture capital funding, drafting and negotiating vendor and customer agreements, mergers and acquisitions, and intellectual property...
Published in Landslide® magazine, Volume 10, Number 6 , a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Corporate and Intellectual
Property Considerations
for Startups Seeking
Venture Capital Funding
By Chris Sloan and Emily Brackstone
Intellectual property (IP) is often the most valuable asset of
a startup. Thus, identifying and protecting those IP rights is
critically important for preserving and enhancing the value
of the business. IP issues should be considered at each
phase of the company’s life cycle, including when the com-
pany is formed, when it seeks to raise money from outside
investors, and when it enters into key agreements with cus-
tomers, suppliers, or strategic partners.
Startups are often short on cash at the time they face
some of the most important legal decisions impacting their
business. Due to this lack of resources, startup founders
often attempt to handle legal matters on their own, result-
ing in mistakes or omissions that are uncovered later, often
inconveniently during investor or buyer due diligence, and
that must be resolved, usually at a greater expense to the
company than if they had been handled appropriately at the
outset. In some cases, these issues are signicant enough to
kill an important transaction altogether.
In this article, we will discuss certain IP matters that
should be considered as the company is formed, as it com-
mences business, as it seeks to raise investment capital from
outside investors, and as it enters into key contracts.
Entity Formation and Structure
Some of the most important issues arise when the company is
rst formed. Accordingly, it is important for startups to struc-
ture and form the company properly to minimize potentially
damaging issues among the founders, to ensure that the compa-
ny’s intellectual property is protected, and to inspire condence
from potential investors during the due diligence process.
Choosing a Name for the Business
One of the rst things that startup founders must do when
launching a business is to select a name for the business. The
founders must choose a name for their legal entity, which
may or may not be the same as the trade name they will use
in operating the business. Each state prohibits the formation
of a new entity using the same name as an existing entity that
has been formed or registered to do business in that state.
The extent of these restrictions varies from state to state, so it
is wise to check the availability of the proposed name in the
specic state where the entity will be formed.
As noted above, the company may decide to operate using
a trade name that is different from the legal entity name. If so,
in addition to forming the legal entity, the company should
also le an assumed name registration for the trade name in
the company’s state of formation and the states where it will
conduct business. Many states prohibit the registration of a
new assumed name that is the same as an existing assumed
name or legal name registered in that state. However, some
states are less restrictive regarding duplicate trade names,
so startup founders should be aware that just because a state
accepts an assumed name registration for ling does not nec-
essarily mean that another company could not later le an
assumed name registration for the same name.
Startup founders often mistakenly believe that the com-
pany obtains trademark rights in the company name once they
successfully use it to form the entity or register an assumed

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