10 things to think about when founding a startup

No. 1: Company name (“Firma”)

For the commercial register to accept your chosen company name, it needs to be free (i.e. not already taken) and meet certain requirements – for example, it shouldn’t misrepresent what the company does.

We recommend to also check if your company name can be freely used as a trademark. Otherwise, you might not be able to use it as a brand without infringing on somebody else’s trademark rights.

No. 2: Articles of incorporation (“Statuten”)

The articles of incorporation set the basic rules for the organization of your company. They are one of the documents required by law for the incorporation.

Here are some things to think about:

• When it comes to taking decisions and communicating within the corporate bodies (shareholders, board, etc.), the default of the law is often physical meetings and written (wet-ink) documents. In many cases, the articles of incorporation can change this and allow for digital communication and decision making.
• You might want to consider integrating a clause into your articles of incorporation that provides for a conditional share capital for future equity incentive plans or the like.

No. 3: AG, not GmbH

AGs are more attractive to investors than GmbHs and stay responsive even if they have many shareholders. So if you’re planning on raising venture capital, incorporate your company as an AG. Otherwise, you will have to convert it later on, which is costly and takes extra time.

Here are some of the reasons to choose an AG over a GmbH:

• You can split your stock into smaller pieces, which makes negotiating with investors easier.
• Share transfers are much easier for AGs.
• GmbH shareholders are listed in the commercial register, while AG shareholders are anonymous to the public. In many cases, investors will prefer to invest in an AG because they’re reluctant to let the whole world track their investment activities.

No. 4: Stock split

Split your startup’s share capital into lots of shares. We usually recommend using the minimum par value (“Nennwert”) of CHF 0.01, which means a company with a share capital of CHF 100’000 has 10’000’000 shares. With the new legislation on AGs bound to enter into force in the next year or two, the par value of AG shares can be even lower (anything above CHF 0).

Being able to split the cake into many pieces makes raising capital and implementing equity participation plans easier. The more cake pieces you have, the more flexible you are in representing the ownership structure you negotiate with your investors or envisage for your employees and advisors.

No. 5: Cap table

By law, your startup (if it’s an AG) will need a share register (“Aktienbuch”): a list of all shareholders with their contact details and information about their shares (number of shares, transfers, etc.).

In preparation for your seed round, we recommend to also keep a cap table.

The cap table contains your startup’s financing history. It shows who put how much money into the company at what point in time and how many shares they received for it. It also shows shares or stock options allocated in an employee participation plan, any open convertibles you might have, etc.

No. 6: FATF notice (“GAFI Meldung”)

For anti-money laundering purposes (transparency), shareholders who have more than 25% of the share capital or voting rights in a company are legally required to file a notice disclosing the beneficial owner of their shares (who can be themselves or somebody else).

With startups, this is particularly relevant for the founders, as they usually pass the 25% threshold. As long as you haven’t filed this notice, your shareholder’s rights are suspended – meaning, for example, that you can’t vote in the shareholders’ meeting, or that your vote is invalid if you did vote.

No. 7: Shareholders’ agreement (“Aktionärsbindungsvertrag”)

This contract defines the rights and obligations of the shareholders of your company. Most importantly, it’s a way to put certain safeguards and incentives in place, like, for example, founders’ vesting and other restrictions to the transfer of shares.

The shareholders’ agreement will help avoid shares being transferred to people you don’t want as shareholders, or, on the other hand, make sure certain share transfers do happen if you want them to (exit!). It will also give you peace of mind and protect your startup in case of unfavorable scenarios, like, for example, when a founder decides to leave the company.

No. 8: Employment agreements

Use written contracts for all employees – including you, the founders – from the start. This not only helps clarify everybody’s expectations and avoid bad surprises, but is also something your investors will want to see once your first financing round comes up.

Here are some clauses that are particularly important for startups:

• a confidentiality clause, because you’ll be doing new things and creating proprietary know how,
• an IP clause to make sure your startup owns its intellectual property,
• non-compete and non-solicitation clauses, because you don’t want to lose your best people to the competition.

No. 9: Intellectual property

For many startups, their intellectual property is an important, if not THE most important asset. It determines the value of your company when you talk to investors or when you’re heading for an exit.

If you, your cofounders or a contractor you hired created intellectual property (e.g. a prototype of a product) before you incorporated your startup, this IP needs to be assigned to the new company or it won’t be the company’s IP.

This is usually done with an IP assignment agreement – a short contract where the creator transfers his or her IP to your startup.

No. 10: Corporate housekeeping

Get into the habit of holding regular board and shareholders’ meetings, archiving contracts and other legal documents, and generally keeping up with corporate housekeeping from the start.

This isn’t only required and/or recommended for legal reasons, but also prepares your startup for your first financing round. Your prospective investors will want to see those documents to do their due diligence. Not having them ready means not being due diligence ready, which might delay the financing round, diminish the valuation your investors will accept or, in the worst case, jeopardize the round.

This article first appeared on the EMBARK.LAW Blog at https://embark.law/en/founding/.

This information is for discussion and general information purposes only. It is not meant as legal advice.