While Silicon Valley and New York City remain the most often-touted cities for startup success, Austin is quickly growing as a top alternative. With a 41.4% jump in tech-industry employment between 2001 and 2013 due to the influx of new startups, Austin has been crowned a top city for technology job creation and startup success. With the tax breaks for new business and no income tax, Texas has become known as a pro-business state. As the startup community in Austin flourishes, venture capital and resources become more readily available. More founders are choosing Austin every day, increasing the demand for quality Austin startup lawyers and experienced legal advice on the legal issues most commonly faced by startups.
Establishing a Startup in Austin
Transforming a great idea into a thriving startup is challenging. Founders who take the time to sort out the legal issues at the very outset with the help of an experienced Austin startup lawyer tend to have more success.
Founders Agreement and Corporate Governance
When founders divide shares through a founders agreement, startups do much better in the long run, because they avoid the legal uncertainty of a battle over ownership—something that can easily torpedo a potential venture capital agreement. Startups must establish how much of the company each founder deserves and if these shares will be subject to reverse vesting.
The founders agreement is the first part of drafting vital corporate governance documents. Corporate governance documents with clear operations and procedures detailed produce a higher return on equity, which is good for you, your co-founders, and your investors. This ultimately fosters transparency—one of the elements vital to long-term business success.
Formation in Texas
There are many formation options to make your company a legal entity in Texas, but the following are the most common for Austin startups:
Sole Proprietorships. A sole proprietorship is the most common and simplest business structure in Texas, as it requires filing no incorporation documents with the state. Sole proprietorships simply register for an Assumed Name Certificate with the Travis County clerk’s office. It’s important to keep in mind, however, that a sole proprietorship does not limit your personal liability.
General Partnerships. General partnerships are flexible structures for small groups of founders that do not limit your or your partners’ personal liability. Like sole proprietorships, general partnerships are not incorporated at the state level. You register for an Assumed Name Certificate with the Travis County clerk’s office. Limited Partnerships: Limited partnerships share many characteristics with general partnerships, except that certain partners limit their liability as silent investors. To form a limited partnership, you must file a Certificate of Formation and your partnership agreement with the Texas Secretary of State and pay a $750 filing fee.
Registered Limited Liability Partnerships. Unlike general or limited partnerships, registered limited liability partnerships allow all partners to limit their liability. In a registered limited liability partnership, no partner is individually liable for debts and obligations of the partnership incurred by other partners. To form a registered limited liability partnership, you must file a Certificate of Formation and your partnership agreement with the Texas Secretary of State and pay a $200 per partner filing fee.
Corporations. Corporations, especially C-Corps, are individual tax entities that limit founders’ personal liability. To incorporate as a C-Corp or S-Corp, you must file a Certificate of Incorporation and pay a $300 filing fee with the Texas Secretary of State.
LLCs. Limited liability companies are hybrid legal entities that have flexible corporate structures and are typically taxed as pass-through entities. To create an LLC, your startup must file a Certificate of Formation and pay a $300 filing fee with the Texas Secretary of State.
Hiring Your First Employees and Texas Employment Law
Your startup must have a basic understanding of Texas employment law from day one. This means you must comply with everything from wage laws and health and safety regulations to hiring and firing regulations. Austin employment law is not particularly strict about hiring documents required to be issued by startups, but it is still within any founder's best interest to carefully draft such documents to limit liability. As many startups offer employee equity as well, it is vital for you to find out whether a 409A valuation is necessary, as well as ensure that the documents contain proper disclosures as required under Texas blue sky laws and federal securities laws.
Many founders assume that securities laws are not applicable until making a large offering, but the truth is that any offering of shares is subject to SEC purview and securities laws. In fact, every issuance of stock must be done carefully within compliance with all relevant legislation. If you are considering any investment deal or stock issuance, your first step should be consulting with an Austin startup lawyer.
Intellectual property is a valuable assets of every startup. Whether you have developed a groundbreaking technology that can be protected by a patent or you simply have a brand worth trademarking, a Texas IP lawyer will be able to help you develop the strongest possible IP protection strategy. Using a combination of non-disclosure agreements, registrations and other instruments, your Austin startup lawyer can ensure that the value of your IP remains intact.
Austin Venture Capital Investment
Austin has plenty of opportunities for venture capital investment, but startups must be prepared to face all the legal complexities involved. Venture capital investment contracts are detailed documents which will make a lasting impact on the way you do business. Having a top startup attorney working with you throughout the process will ensure that no unexpected negative outcomes hurt you later.
Why Partnering with an Austin Startup Lawyer from Day One Is Vital to Success
An excellent startup attorney can advise you on the full suite of legal issues commonly faced by startups -- including formation, corporate governance, intellectual property, employment, securities, fundraising and more -- so that you can focus on building a successful business.