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Employment Agreements vs. Independent Contractor Agreements: What Founders Should Know
Startups often rely on both employees and independent contractors. But these are legally distinct relationships - and using the wrong type of agreement can create serious legal and financial risks. Misclassification can lead to tax penalties, lawsuits, and regulatory violations, especially in strict states like California and New York.
Offer Letters for Startups: What Founders Need to Know
Hiring your first employees is an exciting milestone. But it’s not enough to agree on salary with a handshake. A clear, well-drafted offer letter sets expectations, outlines key terms, and helps reduce the risk of misunderstandings later.
Fired or Quit? Why It Matters Legally for Your Startup
When someone leaves your company, founders often want to just “move on” - but whether the departure was voluntary or involuntary has lasting legal and financial consequences. From unemployment claims to final pay rules, the details matter.
FAQs
Open allWhy do some investors require a Management Rights Letter?
Because funds with ERISA or pension fund LPs must show they are “managing” investments to avoid regulatory restrictions.
Can bylaws alone provide indemnification?
Bylaws may provide some protection, but stand-alone indemnification agreements are stronger and more enforceable, offering tailored protection for each director or officer.
How does indemnification relate to D&O insurance?
The indemnification agreement provides contractual protection, while D&O insurance provides financial backing. Together, they form a two-layer shield.
Does indemnification cover all types of claims?
No. It usually excludes fraud, bad faith, or gross negligence. Coverage applies only when actions are taken in good faith within the scope of duties.
Who typically receives indemnification agreements?
Founders, directors, executive officers, and sometimes key advisors.
Are ROFR and co-sale rights actually used in practice?
Yes, but selectively. While ROFR and co-sale rights are often more about governance than daily use, they remain an important safety net for investors.
Can founders negotiate exceptions to ROFR/Co-Sale?
Yes. Founders often negotiate carve-outs for estate planning transfers, gifts, or small private sales.
What’s the difference between ROFR and co-sale rights?
ROFR gives the company or investors the right to buy shares before outsiders. Co-sale rights let investors “tag along” and sell their shares alongside a selling shareholder.
Can Voting Agreements change over time?
Yes. They can include sunset provisions or be amended in later financing rounds to reflect shifts in ownership or company maturity.
Do founders always lose board control under a Voting Agreement?
Not always. Negotiated terms often leave founders with meaningful board representation, though investors usually gain at least one seat and sometimes an independent director.
How does the Voting Agreement interact with other financing documents?
It works alongside the Investor Rights Agreement, ROFR and Co-Sale Agreement, and SPA to create a complete governance framework.
Who typically signs the Voting Agreement?
Founders, major investors, and sometimes key employees sign the Voting Agreement as part of a priced equity round.
Can founders negotiate limits on investor rights?
Yes. Founders can negotiate reporting frequency, pro rata thresholds, and board seat limits to ensure rights are appropriate for the company’s stage.
When do registration rights become relevant?
Registration rights only come into play if the company goes public. They give investors the right to sell their shares in the IPO or subsequent offerings.
What is the difference between the IRA and the Stock Purchase Agreement?
The SPA governs the actual purchase of shares, while the IRA governs post-investment rights like information access, pro rata participation, and registration rights.