Originally posted on Stubbs Alderton & Markiles, LLP.
Ryan Azlein, Partner with Stubbs Alderton & Markiles LLP, addresses three of the most pressing legal concerns for founders of mobile application companies.
Q. What is the easiest way to form a legal entity between two people (51%-49%) who want to build a revenue producing mobile application?
A. The first step is to determine of what form of legal entity best fits your needs and circumstances. Typically the choice will be between a limited liability company or corporation, but in some cases a partnership may be appropriate. The determination should be based on consideration of tax issues, corporate governance, limitation of liability and other factors. While there are online resources that provide self-help services and documentation for company formation, these services satisfy the needs of only the most basic company formations. I strongly encourage entrepreneurs to consult an experienced business attorney on these issues.
Q. How can I protect my mobile/tablet application idea cheaply in preparation to talk with potential investors?
A. A common, and relatively cheap, means for protecting any business or product idea when discussing with a third party is to have the other party sign a non-disclosure agreement (NDA). However, venture capitalists and similar investors are famous or having a general rule against signing any NDAs. Because of the numerous companies that VC’s regularly meet with and review, signing NDAs would be too time consuming to review, process and keep track of and could create too much potential liability. Even asking a VC to sign an NDA may be taken as a sign of an inexperienced entrepreneur. As a result, entrepreneurs should disclose sensitive information only to reputable investors, ask the investors in advance about whether they have any competitive portfolio companies, and limit as much as possible the disclosure of any particularly confidential material or trade secrets (particularly at early stages of discussion). Aside from specific issues arising from discussions with potential investors, you should have a carefully thought out intellectual property strategy designed to protect your intellectual property, which may include pursuing protection under trademark, patent and/or copyright laws.
Q. What are the most critical legal issues facing startups who aim to release mobile applications internationally?
A. Expanding any business internationally can be complex, and potentially costly. With respect to legal aspects of launching mobile applications in other countries, a critical issue is ensuring that your application and its terms of service and privacy policies comply with the laws and regulations of each individual country. Other important legal issues to consider are whether there are any licensing requirements in the applicable jurisdictions, whether you should establish a local branch office or subsidiary in the event that you will have employees in or transactions in the foreign country, and whether you need to take additional actions to protect your intellectual property in the local jurisdiction. In addition, it is vital to get good advice in advance regarding international tax planning and reporting.
Ryan Azlein is a Partner with the Firm. Ryan advises a wide range of both public and private clients, focusing on emerging growth, development stage and middle-market companies as well as venture capital firms, angel investors and strategic investors. Ryan’s practice concentrates on venture capital and corporate finance, mergers and acquisitions, equity and executive compensation matters, intellectual property development and licensing arrangements, SEC reporting and disclosure, public and private securities offerings, complex partnering arrangements, and general corporate matters.