Day 8

Intellectual Property:

The idea of intellectual property comes in several flavors. While most would consider a project "think" intellectual property that may one day get patented, there are many other forms of intellectual property that get created every day the business is running. Many would call the day to day operations the trade secrets that are the life blood of the business. Whatever you call it, intellectual property is where the rubber meats the road and if taken into account as confidential, can lead the road to success, and treated with a lack of understanding can lead to a road of failure.

I would like to say at this point you have a team of people you implicitly trust with your intellectual property. Do not be vague with this group and disclose, disclose, disclose. First and foremost in this team is the legal team, next is your banker, and last is your accountancy group. All of these people are your connection to outsourcing those vital elements you either cannot or will not do yourself. Take you banker as an example, you one day you will want to show that banker you’re all trusted and highly confidential business plan. You trust your bank and your banker in turn trusts you. That could and should result in one day obtaining business loans or trade funding loans. If you disclose everything to your banker the likelihood you will succeed is increased.

Who do you not trust with your intellectual property, anyone who does not share your core company values, doesn't have an equity stake in the company, and/or anyone else that you would not hold harmless. This is basically the rest of the world. Shh is what is appropriate. Create business plans for this rest of the world that is vague and does not give away your core secrets. This blog is a perfect example; I do not share anything with you that would give away our vital intellectual property.

Finances:

What are the norms in starting on a shoe string, yet having a company full of potential wealth. Stock options are where a corporation beats out any other form of business entity. An LLC needs members and member certificates are the equivalent to shares in a corporation. Member certificates are very difficult to market. In California, an LLC is also restricted to non professionals. That means anyone with a license to operate IE; attorneys, engineers, accountants, architects all cannot form LLC's in the State of California. LLP are for those groups but again what do you market when you need to equity fund your company? A C corporation can easily take care of that.

Cheap stock! Yes $0.001 per share par value is done every day with start-up corporations. Let’s say day one your corporation has a value of just $10,000 dollars. That means 10,000,000 shares are initiated. You may want to split share between preferred and common shares 40/60% respectively. You may want to have about 25% in the common share reserved for stock options, and another 5% in reserve for future use. The balance goes to the founders. The preferred shares you probably will not do anything with in the near term. These shares are reserved for your venture funding series requirements. I would again parse this out into 3 divisions so that you do not sell all your shares in one series A offering. You never know and there are plenty of non public companies that offer series C shares.

In your small corporation your stock value is a function of your balance sheet where your retained earnings is a major factor in determining the stock value.

A note about your Dun and Bradstreet tm rating. First compliance, or everywhere you disclose your account information, your address equals what the State department of State has in their database. Did you also know that if you use a cell phone that is unlisted as your main company number, or a VOIP phone number that is unlisted will negatively flag your company as risky? PO box companies and companies that use virtual offices stand a very good chance of D&B tm ranking your business as risky. And trying to get rid of a high risk category from D&B tm is almost impossible to do.

A word to the wise, call up D&B tm if you are unsure how you must go ahead with your start-up. Another thought, it is okay to have a business out of your home and is advisable if you cannot afford an office. Remember HP tm starting up out of their garage! Apartments are great places to work all night if you are programming. They usually are located close to eating establishments too. An unfriendly business park is not too pleasant a place after hours.

Where we are at: We have completed everything license-wise and compliance-wise and are ready to commence operations. It is something that I can only say is more than satisfying. Getting to this point, I have spent a good 15 hours every day. It is a lot of hard work but where we are today, with two minds working on a laser focused ideal, it is all worth it and if we succeed it is the ride of our lives!

A simple hint for funding your company. Look in your closets, garages and attics and see what you can sell on eBay tm . Start an eBay tm and PayPal tm account in the corporations name. All sales sweep into your corporations accounts. Use QuickBooks tm to show those sales as loans to the company and pay yourself back when revenues from what you actually do start to flow in. Try to get to revenues before you seek venture capital. Unless you have the latest and greatest new medical device it is highly likely venture capital will own the majority of your company and direct its future. Is that something you want?

Next week: Corporate minutes, agendas, and annual meetings.

My disclosure:

I am not an attorney, I am not offering anyone anything more than they can find online with some simple research. You are not to use anything I say in running your business and will hire competent legal, securities, and accounting advice. There is a wealth of information online from competent sources that will help and guide anyone looking to form a start-up corporation. I am merely illustrating our very simple example from week to week. Again I do not give legal advice and anything I say in the blog should be taken as such. Seek competent legal advice from a competent attorney. I am also not offering any advises on securities nor am I offering any securities up for sale or purchase. Again hire competent securities advisors people who are FIRNA and SEC licensed. I do not offer any accounting nor any tax advice, hire a competent CPA for accounting compliance.