Once you have incorporated your startup, you will have dozens of documents related to your company, and the avalanche of paperwork will only accelerate from here. This post will show you how to organize your startup’s corporate records from the get-go to save you time and money and prepare you for more efficient due diligence.
Set Up a Shared Drive
As a freshly incorporated startup, it is probably too early for you to shell out for a sophisticated document management system. Instead, set up a shared cloud drive. Box, Dropbox, or Google Drive are good options. Then, start saving all of your corporate records and contracts to it.
Be sure to carefully set the permissions on the shared drive to limit sharing. You don’t want these documents to be viewable by everyone in your company.
Remember to download contracts from DocuSign, HelloSign, or whatever e-signature platform your company uses and upload important ones to the shared drive. Don’t rely on anyone but yourself to keep good records. Among the many reasons why: you might forget to copy your lawyer on an important document; your email might get trapped in a spam filter; law firms can merge or go out of business; they might experience technical difficulties and lose documents when migrating their document management systems; you might change law firms, or your lawyer might switch firms, and the document transfer process is far from perfect; and law firms, like everyone else, can get hacked.
What Not to Put in the Shared Drive
Don’t upload to the shared drive anything you don’t want to share with the world accidentally. For example, don’t upload communications with your attorneys, which may be protected by the attorney-client privilege. Sharing these with a third-party, whether voluntarily or inadvertently, may waive the privilege. Ask yourself whether you’d want to see the document excerpted on the front page of the New York Times or Wall Street Journal - if in doubt, don’t upload it to the shared drive. There may be a right time to share the document in question with the appropriate people, but to be safe, don’t upload it now.
Unless specifically requested, don’t upload invoices, receipts, or other rote, ordinary course paperwork related to your business. By all means, save these items for the company’s records somewhere else, but not in the shared drive. These items will add clutter and make it more difficult and thus more costly for your attorneys and your investor’s/acquirer’s attorneys to sift through and find what’s important in due diligence.
Organize the Shared Drive with Folders
Organize the shared drive with folders. Name the top folder, “[Company Name] Data Room.” You can organize your shared drive as suggested below, based on a typical due diligence request list structure. You might also create subfolders for the bulleted items. Numbering and lettering folders and subfolders helps with sorting within the shared drive. If you keep your company’s records like this, you will be prepared to respond to 80% of due diligence requests that you may get in a financing or an M&A transaction.
1. Corporate Matters
Your startup’s formation and corporate governance documents go in this folder. These include:
- Certificate of Incorporation - Include the company’s filed certificate of incorporation and any amendments. It is helpful to save a Word version of the latest filed certificate of incorporation, too.
- Bylaws - Save a copy of your company’s bylaws, including any amendments. There is usually a Certificate of Adoption of Bylaws that go with the bylaws.
- Board Meeting Minutes and Board Consents - If you are practicing good corporate governance, you will be documenting significant corporate actions, securities issuances, and stock and option grants via meeting minutes of the company’s board of directors and board committees (if any), and actions by unanimous written consent of the board of directors (aka “board consents”). Save these documents in chronological order.
- Stockholder Meeting Minutes and Stockholder Consents - Save minutes of stockholder meetings and actions by written consent of the stockholders in chronological order. Also save communications to stockholders that your lawyers may have prepared. By contrast, don’t upload the founders’ email updates to investors.
- Qualifications to Do Business in Foreign Jurisdictions - Save the filings that the company makes in foreign jurisdictions to be allowed to do business in those jurisdictions. “Foreign” here means a different state than the company’s state of incorporation. Filing requirements vary from state to state, but you will typically need to qualify if you are hiring employees in those states.
- Entity Ownership Chart - If your company has a parent company or subsidiaries, prepare a chart showing the overall ownership structure of the company and its various entities.
Your company’s cap table and any documents that reflect what is on the cap table should go in this folder. Your company’s lawyers and an investor’s/acquirer’s lawyers will use what’s in here to “tie-out” the company’s capitalization. Be sure to include:
- Current Cap Table - If you use cap table management software, as many startups do, keep that updated instead and generate a cap table report when you need it.
- Stock Ledger or Stock Transfer Books - If you keep manual stock transfer records, save them here. If you use cap table management software, generate this report when needed.
- Stock Purchase Agreements, Stock Certificates, Warrants, Convertible Notes, SAFEs, etc. - Any documents evidencing or representing the company’s issued securities.
- Evidence of Filed 83(b) Elections - If anyone has purchased or received vesting shares from your company, keep the evidence that they have filed their 83(b) elections.
- Closing Volumes - If your company has raised money in an equity or debt financing round, your lawyers may have prepared a closing volume, or closing binder, indexing and containing all the documents related to the fundraising. These are very helpful for capitalization tie-outs, so save them for easy future reference.
- Equity Incentive Plan/Stock Plan Documents - The company’s equity incentive plan, including any amendments, the forms of restricted stock and option agreements for use with the plan, and any individualized stock and option agreements. If you use cap table management software to manage stock and option grants, save the forms only here.
- 409A Valuation Reports - Save the company’s 409A valuation reports in chronological order.
- Other Securities-Related Agreements - If not included elsewhere, save any voting agreements, securities transfer agreements, side or letter agreements with investors concerning their rights, including preemptive or pro rata rights to acquire the company’s securities, and registration rights agreements.
- Securities Law Filings - Any documents the company has filed with the government to comply with securities laws. For example, Form Ds, and 25102(f) and 25102(o) notices.
3. Intellectual Property
Keep records of the company’s intellectual property. These include:
- Registered Intellectual Property - A running list or spreadsheet of, and documents related to, the company’s granted patents, registered trademarks and copyrights, and domain names. Also include any applications.
- Licenses - Copies of any specially negotiated licenses of intellectual property rights to or from the company. You generally don’t need to include copies of licenses for off-the-shelf software or standard products, but do keep a record of what software your company spends a lot of money on or relies on for its business. Also, keep a running list or spreadsheet of any third-party technology incorporated into the Company’s products and services. This includes open source software and the specific license under which it is used.
- Agreements with Third Parties - Any joint venture agreements, joint development agreements, or other agreements with third parties relating to the development of IP.
- Forms of IP Assignment Agreements - Keep the forms of proprietary information/confidential information and invention assignment agreement (CIIAA/PIIAA) for employees, consulting agreement for consultants/independent contractors, and advisor agreement for advisors that the company uses with its service providers, and be sure that every service provider actually signs one!
- Correspondence Relating to IP Infringement - Keep a record of any correspondence sent or received by the company relating to allegations of IP infringement by third parties or by the company.
4. Financial Statements
Keep the company’s financial statements for at least the last two fiscal years, or since the company’s incorporation. A typical request is for annual, quarterly and monthly financial statements (balance sheet, income statement, cash flow statement), and for the year to date. Provide audited financials, if available. Most early-stage startups won’t have audited financials.
5. Management, Employees, Consultants, Advisors
Keep personnel and employee benefits records in this folder. Relevant documents include:
- Service Provider Agreements - Keep any individualized agreements between the company and its service providers, sorted by the name of the service provider, such as offer letters and PIIAAs/CIIAAs with employees, consulting agreements with consultants/independent contractors, advisor agreements with advisors, commission plans, bonus plans, termination letters or certificates, separation/severance agreements, indemnification agreements, and equity-related agreements if not already saved in the Capitalization folders. Also save the company’s standard forms of offer letter and PIIAAs/CIIAAs for employees. There may be several variants of these forms for different employee types and different states.
- Employee Benefits - Keep a running list of benefits plans that your company maintains for its employees, such as health, dental and vision insurance, and 401(k) plans.
6. Legal and Regulatory
If your company is involved in litigation, consider saving relevant documents here, but check What Not to Put in the Shared Drive above. Sometimes a list of cases and a short description is enough. Save any significant permits or government licenses required to operate the company’s business. Also save any correspondence between the company and governmental or regulatory authorities.
7. Material Agreements
Material agreements are those that an investor or acquirer would care about in deciding whether to invest in or buy your company. These include:
- Loan Documents - Any documents relating to the company’s debts, including bank loan and credit agreements, promissory notes, guarantees, and founder’s loans.
- Real Estate - Office and facilities leases are often among a startup’s largest expenses. Leases may require a company to obtain landlord consent in the event of an acquisition.
- Material Business Agreements - These are the agreements that are important to the company’s business. The significance of an agreement is often defined by a dollar threshold. The threshold may increase as a company grows, but is typically set to capture the top 15-20 contracts accounting for the company’s highest revenue and expenses. If outside of the top 15-20, be sure to include any significant contracts with any non-standard terms for your business. If a company’s revenue and expenses are not concentrated in this way, or if there is not much customization between counterparties, then it may suffice to provide the company’s standard agreement templates and note any exceptions. In an acquisition of your company, the buyer may review the company’s contracts more intensively than in a financing, and may ask to see a larger sample size of these agreements.
- Acquisitions and Dispositions - Any documents relating to any significant acquisitions or dispositions of the company’s business or assets.
- Exclusivity Agreements - Any agreements that restrict the company’s ability to compete in any line of business, or any geography, or with any person or entity, or commit the company to continue in any line of business.
- Confidentiality and Non-Disclosure Agreements - It is important to keep tabs on the company’s confidentiality and non-disclosure obligations.
- Broker and Finder Agreements - Any agreements promising compensation to a broker or a finder in connection with a financing or acquisition.
- Insurance Policies - Any insurance policies (business insurance, “key person” insurance, directors’ and officers’ insurance), and a summary of any claims under those policies.
This is a catch-all folder for anything else that may be important for a third party to understand the company. Try to keep documents in this folder to a minimum.
Name Files Consistently with a Naming Convention
To avoid needing to click into and open documents to know what they’re about, use informative filenames for your documents.
Here’s a suggested file naming convention:
Fully Executed, Signed Final Documents (Usually PDFs)
Company Name - Document Grouping (if applicable) - Document Title (YYYY-MM-DD) (Important Information)
- NewCo - Amendment to RSPA (2020-02-04) (John Smith Vesting Acceleration)
- NewCo - Board Consent (2020-12-07) (Option Grants, Officer Appointment)
- NewCo - SAFE (2020-04-10) (Big Venture Fund)
- NewCo - Series A - Stock Purchase Agreement (2020-03-23)
- NewCo - Project Potter - Merger Agreement (2020-03-14)
- NewCo - Canada Sub - Employment Agreement (2020-02-24) (Jane Doe)
- NewCo - CIIAA (2020-06-10) (Bob Loblaw)
Draft Documents (Usually Word Documents)
Company Name - Document Group (if applicable) - Document Title ([Name of Drafter] Draft YYYY-MM-DD)
- NewCo - Amendment to Note Purchase Agreement (ECVC Draft 2020-12-15)
- NewCo - Series B - A&R Investors’ Rights Agreement (ECVC Draft 2020-04-10)
Company Name - Document Group (if applicable) - Form of Document Title (Important Information)
- NewCo - Form of Offer Letter (Exempt) (Last Updated 2020-12-25)
- NewCo - Form of Employment Agreement (TX) (Last Updated 2020-11-11)
- NewCo - 2018 Stock Plan - Form of Option Agreement (Last Updated 2020-10-08)
- NewCo - 2019 EIP - Form of Option Agreement (Early Exercise) (Last Updated 2020-04-01)
- NewCo - 2020 Note Financing - Form of Convertible Promissory Note
Documents That Are Filed
Company Name - Document Group (if applicable) - Document Title (Filed YYYY-MM-DD) (Important Information)
- NewCo - Series C - A&R Certificate of Incorporation (Filed 2020-04-13)
- NewCo - Qualification to Do Business (Filed 2020-05-12) (CA)
- NewCo - 83(b) Election (Filed 2020-05-12) (John Smith)
409A Valuation Reports
Company Name - 409A Valuation Report (YYYY-MM-DD) (Price Per Share) ← Date should be the “valuation as of” date
- NewCo - 409A Valuation Report (2020-04-13) ($0.23)
Documents That Are Final, But Not Signed (Usually Word Documents)
Company Name - Document Group (if applicable) - Document Title (Final YYYY-MM-DD)
- NewCo - Project Amazing - Disclosure Schedule (Final 2020-12-20)
Documents That Are Final, Not Signed, But Are Adopted (Usually Word Documents)
Company Name - Document Group (if applicable) - Document Title (Adopted YYYY-MM-DD)
- NewCo - 2017 Equity Incentive Plan (Adopted 2019-12-14)
- NewCo - Bylaws (Adopted 2014-01-05)
- NewCo - Compensation Committee Charter (Adopted 2014-03-04)