MVP Legal & Compliance Guide: Protect Your Startup from Day One

Legal mistakes can kill your startup faster than bad code. This guide covers essential legal requirements to protect your MVP, comply with regulations, and build a solid foundation for growth.

Incorporation & Business Structure

Choosing the Right Entity

Common Structures for MVPs:

| Entity Type | Best For | Pros | Cons | |------------|----------|------|------| | LLC | Lifestyle businesses | Simple, flexible, pass-through tax | Hard to raise VC, limited stock options | | C-Corp | VC-backed startups | Easy fundraising, stock options, scalable | Double taxation, complex compliance | | S-Corp | Profitable small business | Pass-through tax, limited liability | Restrictions on investors, US only | | Sole Prop | Side projects | Simplest, cheap | Personal liability, no separation |

The Standard Choice: Delaware C-Corp

Why Delaware?
✓ Predictable corporate law
✓ Business-friendly courts
✓ VC expectation
✓ Privacy protection
✓ No state income tax (if no DE operations)

Incorporation Process

DIY Incorporation Services:

• Stripe Atlas: $500 (includes bank account)
• Clerky: $599 (legal forms included)
• Firstbase: $399 (plus state fees)
• LegalZoom: $79-$349 (plus state fees)

What You Get:

1. Articles of incorporation
2. EIN (tax ID) filing
3. Corporate bylaws
4. Initial board resolutions
5. Stock certificates
6. Corporate kit

Post-Incorporation Checklist

Immediate Actions:

• [ ] Get EIN from IRS (free)
• [ ] Open business bank account
• [ ] Set up corporate records book
• [ ] Issue founder stock
• [ ] File 83(b) election (30 days!)
• [ ] Register in operating state
• [ ] Get business licenses
• [ ] Set up payroll

Ongoing Compliance:

• [ ] Annual report filing
• [ ] Franchise tax payment
• [ ] Board meeting minutes
• [ ] Stock ledger maintenance
• [ ] Corporate formalities

83(b) Election - Critical

What It Is: Tells IRS to tax your stock grant now (when worthless) instead of when it vests (when valuable)

Example Impact:

Without 83(b):
Stock vests in 4 years at $1M value
Tax owed: ~$350K (ordinary income)

With 83(b):
Stock granted at $0.001 value
Tax owed: ~$10 (at grant)
Later sale: Capital gains only

Filing Requirements:

• File within 30 days of grant
• No extensions possible
• Send certified mail
• Keep proof forever

Founder Agreements

Founder Agreement Essentials

Key Terms to Include:

1. Equity Split
   - Initial percentages
   - Vesting schedules
   - Cliff periods
   - Acceleration triggers

2. Roles & Responsibilities
   - CEO/CTO/etc. titles
   - Decision-making authority
   - Time commitment
   - Compensation

3. IP Assignment
   - All work = company property
   - Past work clarification
   - Invention assignment
   - Non-compete terms

4. Exit Scenarios
   - Buy-out provisions
   - Right of first refusal
   - Tag-along rights
   - Valuation method

Vesting Schedules

Standard 4-Year Vesting:

Year 0-1: 0% (cliff period)
Year 1: 25% vests
Months 13-48: 2.08% monthly

Protects against:
- Founder leaving early
- Unequal contribution
- "Free riders"

Acceleration Clauses:

• Single trigger: Acquisition = full vest
• Double trigger: Acquisition + termination = full vest
• Partial acceleration: 1 year accelerates

Handling Founder Disputes

Common Conflict Areas:

1. Unequal effort/contribution
2. Strategic direction
3. Role changes
4. Compensation
5. Exit timing

Resolution Mechanisms:

1. Mediation first
2. Arbitration second
3. Buy-out option
4. Deadlock provisions
5. Shotgun clause

Advisor Agreements

Standard Advisor Equity:

Strategic advisor: 0.25-1%
Board advisor: 0.5-2%
Industry expert: 0.1-0.5%
Technical advisor: 0.25-0.75%

Vesting: 2-4 years, monthly
No cliff for advisors

Intellectual Property Protection

Types of IP Protection

1. Trade Secrets

What: Confidential business information
Cost: $0 (just keep secret)
Duration: Forever if maintained
Examples: Algorithms, customer lists, processes

2. Copyright

What: Original works of authorship
Cost: $35-85 to register
Duration: Life + 70 years
Examples: Code, content, designs
Automatic but register for lawsuits

3. Trademarks

What: Brand identifiers
Cost: $250-750 per class
Duration: Forever with renewal
Examples: Name, logo, slogan
File intent-to-use early

4. Patents

What: Novel inventions
Cost: $5,000-15,000+
Duration: 20 years
Examples: Unique algorithms, processes
Usually not worth it for MVPs

IP Assignment Requirements

Employee IP Agreement:

All employees/contractors must sign:

1. Work-for-hire agreement
2. Invention assignment
3. Confidentiality agreement
4. Non-solicitation (maybe)
5. Non-compete (if legal)

Open Source Considerations:

MIT/Apache: Use freely
GPL: Careful - viral license
Commercial: Check restrictions

Always:
- Track dependencies
- Comply with licenses
- Document usage

Protecting Your MVP's IP

Practical Steps:

1. Use NDAs strategically (not with VCs)
2. Register copyrights for core code
3. File provisional patents if truly novel
4. Document trade secrets
5. Control access carefully
6. Watermark demos
7. Log all access

IP protection guide →

Privacy & Data Protection

Privacy Policy Requirements

Must Include (Minimum):

1. What data you collect
2. How you collect it
3. Why you collect it
4. How you use it
5. Who you share it with
6. How users can control it
7. How you protect it
8. Contact information

GDPR Compliance (EU)

Key Requirements:

• Explicit consent for data collection
• Right to access data
• Right to delete ("forget")
• Right to correct
• Right to port data
• Data breach notification (72 hours)
• Privacy by design
• Data Protection Officer (if applicable)

Implementation Checklist:

• [ ] Cookie consent banner
• [ ] Granular consent options
• [ ] Data export functionality
• [ ] Delete account feature
• [ ] Update data feature
• [ ] Audit trail
• [ ] Vendor agreements
• [ ] Breach response plan

CCPA Compliance (California)

Applies If:

• $25M+ annual revenue, OR
• 50,000+ CA residents data, OR
• 50%+ revenue from selling data

Requirements:

• Privacy policy updates
• "Do Not Sell" option
• Equal service regardless
• Disclosure of data use
• Deletion rights

Data Security Requirements

Technical Measures:

✓ Encryption at rest
✓ Encryption in transit (HTTPS)
✓ Access controls
✓ Regular backups
✓ Security updates
✓ Penetration testing
✓ Incident response plan

Administrative Measures:

✓ Employee training
✓ Access policies
✓ Vendor vetting
✓ Data classification
✓ Retention policies
✓ Audit logs

Privacy compliance guide →

Contracts & Terms

Terms of Service Essentials

Core Sections:

1. Acceptance of Terms
   - How users agree
   - Age requirements
   - Capacity to agree

2. Service Description
   - What you provide
   - What you don't
   - Right to modify

3. User Obligations
   - Acceptable use
   - Prohibited actions
   - Account responsibility

4. Disclaimers
   - "AS IS" service
   - No warranties
   - Limitation of liability

5. Indemnification
   - User protects you
   - From their actions
   - Legal fees included

6. Termination
   - Either party can end
   - Effect of termination
   - Data handling

7. Governing Law
   - Which state/country
   - Dispute resolution
   - Attorney fees

SaaS Agreement Components

Beyond Basic Terms:

+ Service Level Agreement (SLA)
+ Data Processing Agreement (DPA)
+ Acceptable Use Policy (AUP)
+ Support terms
+ Payment terms
+ Renewal/cancellation

Customer Contracts

B2B Contract Essentials:

1. Subscription terms - Period, renewal, increases
2. Payment terms - Net 30, late fees, taxes
3. SLA commitments - Uptime, support response
4. Liability caps - Usually annual fees
5. Insurance requirements - E&O, cyber, general
6. Audit rights - Security, compliance
7. Exit clauses - Data export, transition

Vendor Agreements

Key Vendor Contracts:

Hosting/Cloud:
- AWS/Google Cloud agreements
- SLA requirements
- Data location rights
- Security commitments

Payment Processing:
- Stripe/PayPal terms
- PCI compliance
- Chargeback liability
- Reserve requirements

Third-party Services:
- API terms
- Data sharing
- Uptime dependencies
- Termination rights

Employment Agreements

Employee vs Contractor:

| Factor | Employee | Contractor | |--------|----------|------------| | Control | You direct how | They decide how | | Equipment | You provide | They provide | | Benefits | Required | None | | Taxes | You withhold | They pay | | IP | Automatic assignment | Need agreement |

Contractor Agreement Musts:

• Deliverables/milestones
• Payment terms
• IP assignment
• Confidentiality
• No employee relationship
• Insurance requirements

Industry-Specific Compliance

FinTech Compliance

Requirements Vary by Service:

Payments: PCI DSS, money transmitter
Lending: State licenses, TILA, FCRA
Investing: SEC registration, FINRA
Banking: Partner bank, BSA/AML
Crypto: FinCEN, state licenses

Common Requirements:

• KYC (Know Your Customer)
• AML (Anti-Money Laundering)
• Transaction monitoring
• Suspicious activity reports
• State licensing
• Compliance officer

HealthTech/HIPAA

HIPAA Requirements:

• Physical safeguards
• Technical safeguards
• Administrative safeguards
• Business Associate Agreements
• Breach notification
• Employee training
• Risk assessments

Avoid HIPAA When Possible:

• Don't store health data
• Use de-identified data
• Focus on wellness vs medical
• Let providers handle PHI

EdTech Compliance

FERPA (Education Records):

• Parental consent under 13
• Access rights
• Correction rights
• No disclosure without consent
• Security requirements

COPPA (Children's Privacy):

• Parental consent required
• Limited data collection
• No behavioral advertising
• Safe harbor provisions
• FTC enforcement

Industry Best Practices

Any Regulated Industry:

1. Consult specialized lawyer early
2. Build compliance into product
3. Document everything
4. Regular audits
5. Employee training
6. Incident response plan
7. Insurance coverage

Legal Risk Management

Common Legal Pitfalls

Avoid These Mistakes:

❌ Using online templates blindly
❌ Ignoring employment law
❌ Missing IP assignments
❌ No founder vesting
❌ Handshake deals
❌ Copying competitor terms
❌ Ignoring data privacy
❌ No insurance

Insurance Requirements

Essential Coverage:

General Liability: $1-2M
- Bodily injury
- Property damage
- Personal injury
- Advertising injury

Errors & Omissions: $1-2M
- Professional mistakes
- Negligence claims
- Failure to deliver
- IP infringement

Cyber Liability: $1-5M
- Data breaches
- System failures
- Privacy violations
- Restoration costs

D&O Insurance: $1-3M
- Director decisions
- Employment claims
- Investor lawsuits

When to Hire a Lawyer

DIY OK:

• Basic incorporation
• Standard privacy policy
• Simple NDAs
• Basic employment offers

Need a Lawyer:

• Founder disputes
• Fundraising
• Complex contracts
• Regulatory compliance
• Litigation threats
• M&A discussions
• International expansion

Legal Budget Planning

Typical Legal Costs:

Incorporation: $2,000-5,000
Fundraising: $10,000-50,000
Employment setup: $2,000-5,000
Privacy compliance: $5,000-15,000
Custom contracts: $2,000-10,000
Ongoing: $1,000-5,000/month

Your Legal Action Plan

Pre-Launch Checklist

• [ ] Incorporate properly
• [ ] Founder agreements signed
• [ ] IP assignments complete
• [ ] Privacy policy live
• [ ] Terms of service live
• [ ] Insurance obtained
• [ ] Compliance reviewed

First 30 Days

• [ ] Employment agreements
• [ ] Vendor contracts
• [ ] Customer contracts
• [ ] Trademark search
• [ ] Domain protections

Ongoing

• [ ] Quarterly legal review
• [ ] Annual compliance audit
• [ ] Update terms regularly
• [ ] Monitor regulations
• [ ] Document decisions

Legal Resources

Document Templates

• 📝 Privacy Policy Generator
• 📄 Terms of Service Template
• 🤝 NDA Template
• 📋 Legal Checklist

Legal Services

• Clerky: Startup documents
• Ironclad: Contract management
• DocuSign: E-signatures
• LegalZoom: Basic filings
• UpCounsel: On-demand lawyers

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Remember

"An ounce of prevention is worth a pound of cure." - Benjamin Franklin

Good legal hygiene from day one prevents expensive problems later. Invest in proper setup to build on solid ground.

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Legal compliance isn't optional – it's the foundation of a sustainable business. Do it right from the start.