The nurturing of small businesses is a key to future economic growth and job creation, and a vital part of the free enterprise system. The role that CPA firms, banks and law firms play in this process is an important one. Here are some best practices in the form of case studies that show how the right counsel can be the difference between success and failure for many entrepreneurs and their ventures.
McCarter & English, LLP
By Stephen M. Vajtay, Jr., Esq.,
Managing Partner
Tech and tech-enabled startups and emerging growth companies often grow rapidly early in their development cycle. Focused mainly on research, innovation, product development and market penetration, these enterprises often do not onboard employees and consultants appropriately, sometimes failing to secure agreements and restrictive covenants regarding invention assignments and confidentiality. This oversight can have costly consequences that can delay or break deals, especially those featuring capital raising or monetization events. Investors and acquirers seek assurances regarding chain of title to intellectual property and protection of innovations. Having seen many companies unable to meet this routine diligence request, including recently in a sell-side transaction by a Somerset County-based, new e-commerce client, our venture capital and emerging growth company lawyers, under the direction of David Sorin, recommended that these important provisions and agreements be embedded in equity incentive plans. Doing so ensured that anyone who received an equity incentive would be bound by these provisions. We routinely counsel our clients to focus on having such agreements executed in a timely fashion, preferably upon employment or engagement. But when, as here, there is a failure of process, we have been able to add binding, enforceable restrictive covenants in favor of the company.