Minnov8

Showcasing Minnesota Technology Innovation

Apply for the Minnesota Angel Tax Credit for 2011

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If you are raising capital for your tech startup, get certified for the Minnesota Angel Tax Credit as early as possible this year. The Angel Tax Credit is a huge incentive for investors. It helps them manage the risk associated with new ventures, and it may also indicate that your company is a safer bet than an uncertified company.

The Minnesota Angel Tax Credit is an income tax refund equal to 25% of all eligible investments. There is over $12 million per year available to investors for 2011 through 2014, but less than $2.5 million was allocated to 19 companies in 2010, so there is plenty of room for more companies and investors to participate in the Angel Tax Credit program this year.

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Startup Succession Planning

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http://www.flickr.com/photos/furnari/177545342/

A survey of over 140 North American CEOs revealed that nearly half of their companies do not have a succession plan:

While 69% of respondents think that a CEO successor needs to be “ready now” to step into the shoes of the departing CEO, only 54% are grooming an executive for this position.

Part of the reason, as Felix Salmon points out, is that corporate boards like to hire the next big star to take over. That may work for big corporations (sometimes), but startups that lose an owner may founder and die without a clear successor to take over.

Startups are often personality-driven, but that does not mean they have to end when the driving personality leaves. A succession plan is simply an answer to the question “what do you want to happen if the owner leaves or dies or something?”

At a minimum, take care of these four things:

  1. Pick and train a successor;
  2. Make sure the owner’s will passes on the business;
  3. If necessary, use a buy-sell agreement to pass on the owner’s interest; and
  4. Fund the transition costs with a life insurance policy on the owner.

A succession plan is like a business’s will. And just like a will, you’ll gain peace of mind once you have one in place.

Sam Glover is a Minneapolis business lawyer for geeks. He also edits the law firm marketing and practice blog Lawyerist, Lawyerist, and Caveat Emptor, a consumer law blog, and speaks frequently on law practice and lawyering.

Startups–Lean or Not–Beware Online Legal Forms

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"Fail Whale" photo by binxitron

You can find anything online, including legal documents. But that doesn’t mean you should use them. Two local lawyers recently put LegalZoom and LawDepot, two popular online legal forms providers, to the test.

LawDepot calls itself a “trusted, do-it-yourself legal” website. LegalZoom says “we put the law on your side,” and features favorable quotations from the Wall Street Journal and a lawyer on its front page.

It remains true, however, that you get what you pay for. For example, employment lawyer Karen Lundquist recently took a good, hard look at LawDepot’s $15 employment agreement. She found that it actually contained a provision that was illegal under federal law. In other words, there is no state in the country where the term would be legal. In every state, a company that tries to cut costs by using LawDepot’s employment agreement is just begging to get sued.

Another local lawyer, Greg Luce, took a look at LegalZoom’s $69 will package. Luce tried to put a positive light on what he got, calling it “a good start.” Not exactly a ringing endorsement.

There is an old saying: “only a fool has himself for a lawyer.” Downloading online legal forms is like playing Russian Roulette with your business. Unless you have the expertise to spot the problems Lundquist and Luce ran into, you probably shouldn’t use them. Of course, if you had that expertise, you probably wouldn’t need the forms, anyway.

Cheap legal forms may be tempting, but sometimes the cheaper path costs a bit more up front. You will have trouble keeping your startup lean while you are defending yourself from an employment discrimination lawsuit. Pay a lawyer for the right document, and you can avoid that ugly scenario.

Skip the online legal forms unless you know what you are doing.

Sam Glover is a Minneapolis business lawyer for geeks. He also edits the law firm marketing and practice blog Lawyerist, Lawyerist, and Caveat Emptor, a consumer law blog, and speaks frequently on law practice and lawyering. We’re pleased to have Sam as a new contributor to Minnov8.