tech start up concerns
June 4, 2012 7:57 PM   Subscribe

What should I look for in an employment contract for new startup?

I'm in Toronto. I've been working for a small tech startup since fall last year. The company's bread and butter is software, but I've been heading up a new hardware project. I believe the plan is to eventually spin this hardware project off as a separate division.

We just finished applying for the communitech Hyperdrive accelerator program and we've already file a couple of provisional patents on the work I've been doing the past 6 months, but at the moment this project is not in any way a separate business and hasn't brought any money in.

We're getting to the point where I'm going to assign the IP formally to the parent company and I've mentioned in a friendly way that I'm only comfortable signing over IP once I also have an employment contract in front of me to sign.

For the most part I'm happy with a boiler plate employment contract, although there are a couple of small tweaks I'd like to suggest. One thing that will be an issue is my stake in the company -- I'm basically getting paid peanuts right now, with the understanding that I'll get a stake in the company. Most of the material I've been able to find on employee stock options is very U.S. / silicon valley oriented and I'm not sure how well it translates to Ontario/Canada. There seem to be some fairly esoteric tax implications that are regularly discussed in the US context. I haven't yet found anything that covers a Canadian/Ontario context.

What other things are worth thinking about?
Recommendations for good resources, particularly in the Ontario/Canada context?
posted by slipperywhenwet to Work & Money (6 answers total) 3 users marked this as a favorite
You probably need an attorney with a substantial amount of experience in similar matters to:
  • Review the boilerplate terms;
  • Contract for the formal transfer of the appropriate interest in the company;
  • Review the tax implications or refer you to another attorney or accountant who can;
  • Do an overall sanity check on retaining your share of the value that you're producing for the company;
  • Counsel you and refer you to IP practitioners as necessary to represent you in the transfer or licensing of the assets;
  • Counteract the persuasive and/or talk-you-to-sleep abilities of existing shareholders and/or their attorneys (good fences, etc.) If there's any possible significant amount of money in this for you, and particularly if you have any hand in creating potentially valuable IP, I think it would be foolish to proceed without expert advice.

posted by Inspector.Gadget at 8:05 PM on June 4, 2012 [1 favorite]

Response by poster: Ooookay.. then my next ask.mefi question will likely be: "how do I get affordable legal advice in Toronto?"
posted by slipperywhenwet at 8:16 PM on June 4, 2012

"how do I get affordable legal advice in Toronto?"

The Law Society of Upper Canada runs a free Lawyer Referral Service. It's a help line (toll free number on the web page) where you get a free 30 minute consultation with a paralegal (and a free follow up with a lawyer in the appropriate field if it's beyond a paralegal's scope of expertise). You describe your legal problem, they ask clarification questions, and then they will:
* help you figure out what kind of lawyer (or paralegal) you need
* provide you with a (potentially huge) contact information web listing of all Ontario lawyers licensed for that legal area, and
* might recommend specific individuals who happen to specialize in your kind of case/need

LSUC is an excellent first step; at the very least you know they'll never steer you towards anyone with questionable legal backgrounds. Their site also has lots of information about what to look for when searching for legal advice.
posted by ceribus peribus at 9:05 PM on June 4, 2012

Also, the LSUC referral service used to have a one time $6 fee, but it looks like that changed to entirely free a few years ago. They will not do any "work" on your case, but will help you clarify your rights and options, and will discuss how much the fees might be. They also have an ethical standard where any lawyer they refer you to will also give you a 30 minute free consultation along the same lines.

LSUC is the organization that regulates, licenses and disciplines legal practice in Ontario. Their LRS was basically custom made for this.
posted by ceribus peribus at 9:24 PM on June 4, 2012

Actually, Communitech is a good place to start asking these very questions. Visit the hub, sit down with an entrepreneur in residence, talk to some startups, you might get some more information about Canadian option plans etc.
In Toronto, MaRS is similar. At least these guys can both point you in the right direction. They serve startups, but also people who work in startups.
As to assignment of IP: does your current contract have any clauses? You might have signed it off already. IANAL but contracts typically have these. If you haven't signed a contract yet, do ask for a sit down. Figure out how much your underpaid time cost, as to have an argument about your contribution on shares. Finally, remember that options are a crap shoot, so you should only go after stuff you believe in. Otherwise... What's the point?
posted by Yavsy at 9:46 PM on June 4, 2012

Response by poster: I don't have *any* contract at the moment. That's why I'm asking for one before I sign IP over.
posted by slipperywhenwet at 5:53 AM on June 5, 2012

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