Set-Up

DECISIONS

Company Name: This should be unique, memorable, and clear of other existing businesses in similar market spaces; online tools can help find available names.

State of Incorporation: A business can incorporate in any state, and generally do so in the state in which they are headquartered. However, a few states such as Delaware and Nevada do offer specific financial benefits to companies incorporated there.

Corporate Structure: Many startups begin as LLCs, but growth companies may choose a C-corp.

List of Founders/Members

Mailing Address: A headquarters may start in a residence, but typically soon moves to a separate office space when operations begin. Post office boxes are generally not sufficient. KU has incubators such as the Bioscience & Technology Business Center located on the KU & KUMC campuses.

Website: A must in today’s modern world - secure a domain name and expand the website to be your marketing tool.

Accounting/Finance System: It is important to comply with all relevant federal, local and state tax requirements. Keep tax records for a minimum of three years.

Employer Identification Number (EIN): An EIN (also known as a Federal Tax Identification number) is obtained from the IRS and is required for opening bank accounts and processing payroll.

Dun & Bradstreet D-U-N-S® Number: This free unique identifier for each business location is necessary to receive government grants or contracts such as Small Business Innovative Research grants (SBIRs). 

Sales Tax Permit: From state of company headquarters.

Business License: From city/county; grants the right to conduct business in that jurisdiction.

Business Insurance: To protect the business. Licenses from KUIC require proof of insurance.

Federal Drug Manufacture Permit: If applicable, from the Food and Drug Administration (FDA).

Company Logo/Branding Materials: Can be developed after the company is established, but should be in place prior to web or product launches, including trademarks on the company name and logo.

OTHER DOCUMENTS YOU WILL NEED TO CONSIDER

Operating/Partnership Agreements (LLCs): These agreements, while technically optional in many states, are important as they protect the company from certain state laws that apply by default to LLCs without such agreements, and help avoid or resolve conflicts between members by memorializing in writing the company’s daily operations and member roles.

Corporate Bylaws (C or S Corps): Typical bylaws include the company’s; mame, objective, members, officers, meetings, executive board and committees.

Employment Agreements: Often overlooked at the start, these are helpful when dealing with disagreements or conflicts between founders and early employees. These agreements should discuss roles and responsibilities, titles, compensation, any equity and vesting terms, duration of employment, grounds for termination, any applicable non-complete clauses, confidentiality of company information, work product ownership and dispute resolution.

Non-Disclosure Agreements: Most licenses require KU or KUIC confidential information (such as patent applications) to be protected if shared with investors or potential new management team members.

PITFALLS

New company formation is a high risk proposition. While many startups are successful, others are not. Some problems we see frequently are:

  • Inexperienced Management- A strong, experienced, cohesive team is required for a successful startup company. Problems can arise if founders or other members of the team do not have enough startup and business experience or if founders, new management, and investors are not on the same page.
  • Lack of Funding- A startup needs sufficient capital to overcome challenges, reach milestones, and progress to the next phase of development. To attract investors the company must have a sound business plan and management team.
  • Technology Does Not Meet Commercial Need- Sometimes science is innovative and exciting but does not meet a critical commercial need, or current solutions are a better option than the new technology.
  • Timing- The company may miss the market, even when there is a commercial need. This can be due to the market not being ready for a product, it could be too costly, too early or an unrecognized need. It can also be too late to the market and the need has been met with another technology.
  • Marginal Niche- The target market may be smaller than expected and the company may not be able to meet financial requirements.
  • Bad Luck- Sometimes events outside of the entrepreneur’s control can happen and have a negative impact.

OBLIGATION TO SPONSORS

Inventors need to take care in disclosing all inventions and related sponsors, including all companies whose funding or materials helped lead to the invention. Sponsored research agreements specify what rights a sponsor has in any IP developed as a result of the sponsored research. Typically, federal funding of research leading to an invention will not impose significant impediments on commercializing the invention via a startup. Funding or materials provided by other entities may result in license rights to those specific entities, limiting the license rights available for a startup. Corporate sponsors are typically granted rights to negotiate a license for any IP arising from sponsored research, but these agreements vary widely. The staff member responsible for the invention reviews the agreements listed on the invention disclosure to identify any restrictions.


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