 So this presentation is supposed to be in English, but are there any English speakers? Okay, so then we'll stick with English. Great! So, welcome. I am I.O. I'm the CEO of Aspiring. That is one of the first legal supports for the digital entrepreneurs here in the city region. And as you probably know, I'm a lawyer. But I would like to tell you that people and the lawyers especially are nasty people. And when having your own business, you would like to spend as little time with them as possible. And therefore this presentation would be basically a short guideline how to avoid lawyer as much as possible throughout the five rather easy steps. So this would be the outline. So we'll call five areas that basically every single digital entrepreneur experiences is his or her life cycle of the business. So first of all, when you do have an idea or a stabilizer on business, it's really easy for you to really start without any corporate presence. Just as a Friday night project with your friends, you can build up the product, then test it, maybe even introduce it. However, there's no reason for you to set up a corporate entity. But if you would like to really transfer the IP or you would like to receive an investment or you would like to really onboard some clients and get some invoices running, then the company setup is something you should really think about. And there are basically two things you should really think about. The first of all is the geography and the region where you would like to set up the entity. And secondly is the forum. So there are three usual suspects. First of all is the, surprisingly, C region. So there is a good news. The good news is that to have a corporation or a company setup here in the C region is actually a good thing. When it comes to the maneuverability, the ease of control, Slovakia, Czech Republic, Hungary are pretty good for that. In each and every single country, there is a limited liability company. And basically in every single country, you can set up it rather easily, run it very cheaply. Furthermore, when it comes to the C region, there are a number of other advantages for you to really set up the company. So first of all, as a C region tries to really interest and invite entrepreneurs and innovation and everything, there are a number of texts, basically, supplements or incentives for you to really set up your own business. So for instance, there is a text deduction for the R&D, especially in Slovakia, like one month ago. The text deduction was raised to 200%. So basically, if you are doing an R&D, for instance, also in digital business, usually it's a development of complex backend technologies, but it really depends. Then your basically amount of money that's going to be text is going to be decreased significantly. Also, there are favorable IP transfers and also there is a very fine text regime especially, for instance, in Hungary. So if you would dare to commute by the public transport to Raika, which is the closest Hungarian village next to Slovakia, then also you will face with a very favorable income text. Not mentioning that it's also envisaged that maybe an Estonian corporate model will be basically set up in here, saying that the text session will be not processed by the end of each and every year, but basically the text session will be basically withheld until the distribution of the profit. So basically, you will be able to keep your funds in the company, invest them to your growth or to the people or to the assets, and only text them while you would like to really distribute the profits to you so that you don't need to be anxious every October or November in optimization of your business. So the region is quite good. Then there is an offshore and we are not going to discuss any Caribbean adventures, but there is offshore within also EU regions. So for instance, Estonia, that actually is very favorable when it comes to the investment of new businesses that you don't need to tax your income every single year, but you need to wait only until the distribution of the profit. Then there are countries such as Malta and Cyprus. However, be careful because every single tax authority, actually when they see such company from Cyprus or from whatever, Malta, Luxembourg, Netherlands, there is a red flag basically ringing. Actually, you might have got the control, you might have got the double text, so be careful if you are sitting up a business somewhere outside Slovakia or somewhere else, make sure that actually real business operations of your company are happening in there. So either you do have a sales representative over there or some development or some marketing strategy or any other corporate presence because if you want to fake it, then actually you can really face a double taxation as one of the number of penalties. Thirdly, very favorite is the Western Europe and the US. Why? Well, because of the investors. Czechoslovakia, there are approximately 10 to 15 investment funds. Some of them are actually investing public money. For instance, this year around 30 and then maybe even 70 million of euros shall be invested in Slovakia, European money. These money, 10% are going to be invested here in the Slovak region, whereas the 90% are going to be invested in the regions of Slovakia, so basically central and eastern part. Alongside that, there is a lot of private money basically here. On the other hand, what I would say and what's our experience is that local investors do lack a good, I would say, strategic approach. Basically, it's a dummy money. So if you receive money from the local investors, very likely, they will not be able to help you to provide you a global scale, do some door opening, support your own business. If you would like to really search for smart money, investors such as Speed Invest in Vienna or some other investment funds or other angels from the Western Europe that can really support your scale, then it's much more favorable for you to really set up a foreign entity in the Western Europe or US where actually they really understand the jurisdiction, you will raise their trust and therefore you will be more likely to receive those funds. When it comes to the... So this is basically the distribution of the regions. When it comes to the basic forms, well, there is one trick. A few years ago, especially for start-upers and digital innovators, a simplified joint-stock company was established in Slovakia, meaning jednoduchá akcivová spoločnost. And then now many, many lawyers and many experts basically say, yeah, this is for start-ups, go for it. Well, but this is a trap. So limited, the simplified joint-stock company is actually tough. You need to communicate with four different public authorities. So not only commercial register, but also national depository of the securities and then the other authorities. So first of all, it's more difficult. Secondly, you need to really pay for the all accounts and every single transaction and the emission of the stocks. So it's more expensive. And also to administer such simplified joint-stock company, it's not simplified at all. You really need somebody who will basically support you on this one, provide the general assemblies, submitting, filing documentation, etc., etc. So it's not easy at all and you will definitely need a legal support. Therefore, first step to avoid the lawyer is to set up a SRO, meaning limited liability company. Basically, this company can have up to 50 shareholders. So basically with that, you can really support your business for years to come. Once you will scale, you will have hundreds of employees, dozens of shareholders. Then okay, maybe simplified joint-stock company may make sense for you. But until that, once you have a team of dozens of people, then it's really the limited liability company. It's a very simple, fast solution. You can basically found it via Firmarenska or any other non-legal user-friendly solution within a week or even days. Therefore, you should definitely go for this one and be aware of the simplified joint-stock company. Okay, so once you have a company, then you usually have some co-founders. Sometimes you are on your own, of course. Then this is not really relevant for you. But very often, you do end up with the co-founders of yours since you would like to really have a diverse know-how attached to your business. Now, very often the founders are friends. The usual assumption is I don't need a really agreement with a friend of mine or a family of mine. Why would we do that? I mean, we are friends. There is no need for us to really set up an agreement. The problem is once the money comes in, either through investment or through the first clients, then actually the agreements that were agreed a few years ago or a few months ago may have been differently remembered or actually some of them just would like to exploit the situation. Therefore, very often, and we experience very often, the dispute between the founders not having a proper agreement between themselves. The least you can do in order to basically prevent future disputes and keep good friends is to set up a good contract between yourselves called the shareholders agreement. Now, the shareholders agreement is a perfect thing because not only it prevents disputes, but it can even support your business. And we go through that. So, first of all, the thing is if you establish a company, and you have your co-founder, so what do we do? Well, first of all, you will split the shares, right? 50-50. And then, this is the thing. The other founder will receive a 50% of the company you are going to build. And visit or imagine the situation where the second founder, after six months, will have a child or something and will leave the company. But he or she keeps the 50% of the company regardless of her actions or inactions on your behalf. Meaning you can work for years and yet your co-founder that is passive will still keep 50% of the company. Well, this is not a fair, right? And also, not only he keeps the 50% of the company, those 50% will be missing to you when you like to invest the funds or distribute it to your employees, et cetera, et cetera. Therefore, you should think about vesting. Now, vesting is something that you agree at the very beginning that, okay, we get the company as agreed 50-50, but we commit ourselves to stay and work actively for the company for at least, I don't know, two, three, four years. Three to four years is the basically market standard. If one person basically leaves the company, then basically it's obliged to return the equity to the company or to you as the founder. Now, it can be very, very able. For instance, we can say that, okay, either you need to stay there for four years and if not, you lose everything, which is not really fair. But what we can do, we can say it can be proportionate and we can set up one-year cliffs, saying that if I leave after two years, well, I need to return only half of the equity promised to me. If I leave after one year, well, I return three-quarters of the shares. So basically, the founder is actually motivated and stimulated to stay in the company for the years to come and also in the bad times. For instance, previously, I'm from the vacuum labs, the company that has like 200 people right now here in mostly city region. But three years ago, there were like 20 of us and there were three co-founders. One was sales, one was CTO, and one was COO. If any of those founders would leave the company at that stage, the company would not be successful at all and probably would not survive at all. The best thing was one of the key, actually, stimulations for them to really stay together even if the numbers were not too good or even if the personal situation of one of the founders was not very good. So the best thing is good motivation to really keep the team together. And there are a number of ways how we can really make it. Secondly, founders' living clause. This is closely related to the best thing. So there can be some additional obligations. For instance, the founder would say, okay, I cannot quit like next day. My living period needs to be at least a year and throughout the year, I'm forced or obliged to train a basically substitution on my behalf. Leaving the company with a good other person, getting to the company on the particular role of the living founder. Such obligation is again one of the vital supplements of the company in the bad times. Also, there is a dilution for angels. So basically if you do have an idea and you're building your product, so basically you're a really digital product startup, you need the first investment enabling you to build a first MVP or demo or whatever. For that, the first money are really the most important ones. Of course, you have only slides and an idea and maybe one Excel or maybe just a few lines of code. And then the angels are reluctant for you to invest and they require a huge amount of equity, which is bad because then you will lose the equity for the other rounds and other investors and your other co-founders. Therefore, what may be done is that if new investor comes to the company, basically every single other shareholder is going to be diluted. So basically his or her share is going to be decreased proportionately to the increase of the share of the new shareholder. However, this might not be done proportionately and there are different ways. For instance, we can actually say that, okay, so if you are an angel and you really invest the first money to the company, you really show your trust, you may dilute your share slowly. Like your pace might be 50% slower than the dilution of the others, for instance. Such motivation will incentivize the new angels and new investors that give money on the table to really support your idea and can really help you in raising the funds. Thirdly, very often, you do end up with your employees having some shares or with these early stage founders and then actually you need to protect them because if you do have like 5% or 10% of the company, you cannot actually really steer it. You cannot really control it. But if in the shareholders' agreement, there are good minority shareholders' protection mechanisms such as take a long ride or I don't know, shoot out or whatever, then actually the minority shareholders can have a trust that although they are very small and they cannot steer the company, they cannot be fooled. So for instance, it cannot be done as it was done in Facebook that basically you will raise the capital of the company by a few thousand percent and then the shareholder from 5% will end up with 005%, right? So such mechanisms can be included in the shareholders' agreement and basically the minority investors can really have a trust that they cannot be tricked very easily. And there is a shoot-out for instance that can provide you and actually provide you with the tools how you can overcome a deadlock. So basically the situation where you need to adopt a decision but you do not have the necessary majority. So basically there might be a shoot-out which is a very complex mechanism but it can really work. Also what's really important is that you know if you divide rights 50-50 it's the worst actually division that can be made because you always need a second partner to agree. So either you have a casting vote so we say okay if there is a equal vote one should, the CEO usually should have the casting vote and say okay if there is an equality my vote prevails. Ideally should have at least a three co-founders etc. etc. Also when you are basically attaching the voting rights be aware that your company shall probably grow. New people will come, new shareholders will come, new investors will come and those will require some votes. Now you still need your votes to steer the company because without the votes your company is not your at all. Therefore when thinking about the rights please think at least two or three or four years ahead what may happen to your company and be able to keep as much voting power you need for the particular decisions especially for the entry of the new investors, exit of the company or all the other strategic stuff. Cool. So this is the founders. Now we have a company, we have a founders agreement and then we can come to the intellectual property. So basically in our business everything related to the code and to the digital stuff is basically transferred to your clients via transfer of intellectual property. Now there are different types of that. So first of all is a copyright and it's the best one, I really love it because basically it doesn't cost you anything to create, it doesn't cost you anything to register, it actually doesn't need to be registered and it can be actually registered and then it's basically created upon the creation of the code or the design or the website or whatever. The only thing with the copyright is you should be able to really track its origins. In Slovakia intellectual property and especially copyright can only be created by people, by entities made of flesh and bones not by the companies. Therefore if you have your company and you have some contractors via limited liability companies and everything make sure that those limited liability companies, those SRROS, basically providing the license to you get the license from the people on the first place because otherwise you have no certainty that actually the license was acquired by the limited liability company. Also the IP clauses are very tricky. Secondly the trademark. Now sometimes especially once you do have like B2C business you would like your brand to be recognized. For that you would need a trademark. Now trademarks are great because they don't cost very much but they need to be registered. Now it's impossible basically to register a trademark in every single country. It would be time-consuming, it would be expensive but there are some good shortcuts. So first of all if your business is only in Slovakia then it's easy. You'll find for 200 euros an application here in Slovakia. If you do have a European-wide business then you can file automatically a European-wide trademark. That's maybe not covering the UK in a while. But still for 850 euros you can get a trademark covering whole EU area. So like 27-88 member states which is very decent boost for your continuous business. Also what you can do there is a special regime covering like 120 countries which is called the international trademark. This is a bit more costly like 3,000 but then you can really cover most of the world. So really to set up your trademark significantly increases the value of your business protects your business against the competitors trying to really free-write on your brand and also it's not that expensive. When it comes to the patent it's a third usual type of intellectual property although there are some more. But the patent, especially in digital business is not widely used. It's mostly related to healthcare if any and this is rather difficult and expensive. So if there is a possibility for you to protect your intellectual property with a copyright or trademark go for it. The patent is rather not very user friendly. So we have company we have founders we have IP and now employee share schemes. So very, very beginning for you to really set up your own business and be able to compete with the competition out there you need the best people. Now at the very beginning you don't have that much money to really pay for the best people and therefore employee share scheme may be put to the place. If you have an employee share scheme it allows you to basically two things. Equals the pay of the great people working for you via equity not via money you don't have usually and secondly the employees of yours their skin in the game. So basically once the person is ready to accept your equity not only the person says I believe in your company but secondly he becomes also the co-founder or at least a shareholder of the company having said that basically the expectations and the intentions and incentives of yourself and your employees are pretty much the same are aligned and this is very important for your business. So the employee share scheme has significant benefits and there are basically four levels of how formally we like to be. Now the good news is you don't need a lawyer again for at least one or two two types. So most of the companies start with a trust me spreadsheet. Having said that having an Excel names of the people and some percentage written alongside their name. Such it actually is legally binding ish can work for a year or two or especially once your business is small and can really stimulate those people without making any formal registrations or anything. Number of companies in Slovakia run by this and actually it really works although it's not formal it actually there is some binding and you can really claim it on a court ish but also it really gets the you significantly get the motivation, incentives and skin in the game of your people. A bit stronger level is the basically you can include the people into your shareholders agreement so basically they can exceed to it and they become shareholders themselves being applicable all the westing rights, founders living clauses etc. Although they are not founders they may have a bit more lenient and easy regime. It's easy to set up but usually for the good shareholders agreement you should have at least some legal support but then you can really run for years without any change. Third one is options. Now options are tricky because basically what they do is that you receive an option that after completion of some conditions like in three years working for the company I may acquire official shares. Now the option is great because basically it pushes all the registration stuff all the costs all the administration for the years to come but usually when you have your business now today the business may be valued for I don't know 100k but in three years time the business can grow to like 400k now if you receive and you will try to distribute to really consume the option in three years time basically the your taxation regime may actually basically be much stronger because you receive more value for the share because the company is bigger and therefore your taxation obligation may be stronger so be aware with the options. Although they are easy today they may not be that easy in the three or four year time especially if the company is growing if it's stable then it's okay. Last thing is the real shares now the real shares of course are the most formal act it costs the most but with the limited liability company not that much and also it provides the biggest amount of certainty and commitment of your employees it's publicly accessible it's really hard for you to really trick your people so the minority shareholders have a good certainty that you are going to really keep your promises especially when distributing the profit comes to the exit so yeah from our experience basically maybe half of our portfolio companies and partners and clients usually use these and actually it works really really well and the last thing is that if you do have a company and the brand and the founders living clothes and even employees then you should somehow contract them the intellectual property is not passing to you without a written agreement therefore you should have actually some written agreement and there are basically three basic types there are a number of mutations and variations but the three basic types how you can really employ the person and these types are the same also in the in abroad so it's pretty similar so first one is the employment contract now the employment contract it's two-fold there are huge cons and huge pros so first of all the worst thing about the employment contract two things first of all is the taxation that is high secondly the issue is that it's not flexible now with the startup you often need a flexibility you will find out that okay I don't have my cash flow runways like two or three or four weeks then you really need to restructure your company with the employment contract it's not that easy because the people are protected by the labor court okay therefore it's not that great what is good employment contract is for the protection of your employees and they are very well protected and also it's great for the transfer of intellectual property you don't need to have any IP agreement any license agreement automatically based on the legislation everything made by your employees passes on to you even in the broader sense so basically this is very good for the transfer of the IP if necessary also there is a this freelancing regime which is widely used mostly because the taxation regime is really favorable and it's going to be even more favorable next year and however you should be really cautious when it comes to the transfer of the IP your license agreement needs to be drafted very well so that all the IP created as much as possible or as much as allowed by the legislation will pass on to you so that you can really sell it to the other third parties or use yourself or at least have exclusivity of the IP so that the IP won't be sold by your employee to the four or four or five other companies as well lastly there is a B2B relationship now this does not make any sense when you have just an ordinary developer working for you usually because it's more complex you need to have an accountant you need to file a bit more complex tax filings every year so it really makes sense if you have a significant income and then you can really play with the costs around so this is not widely used although when the income is high it might be what you should really think about and I've mentioned it previously is the IP beware of that because company cannot create the IP the human does therefore sometimes if you have a client that is regulated such as bank and you are developing something for the bank they may come and say ok so proof that you really acquired the IP right from your developers and then the agreement with their limited-level company would not be enough you would need to provide actually the contract between the company the limited-level company of theirs and themselves sometimes those contracts may not be existent usually they are not and then this might be an issue for you so really be careful either you can do a three-parties contract between the person or her limited-level company and yourself or there may be at least some separate IP transfer agreement signed between yourself and the person although it's for free so there are a number of ways how you can really deal with it but beware of that this is one of the usual mistakes we see in the innovation companies here in Slovakia and also in the region cool yeah so thank you for the attending now I believe there are 10 minutes for questions then after this talk and after the Q&A session I'll be outside there are some pillows in front of this hall and there will be like another 30 minutes for you to come and discuss via workshop we can discuss really the issues you have in mind and I'll be more than happy to advise and help if possible so thank you very much ok so thank you very much I have one question here would you recommend for employees to know each other's share portion is it needed or not that's a good question depends I've seen companies trying to be less transparent and really trying to basically not raise envy of the actual people and employees I'm working in the company that is very transparent so having said that all shares are basically public or salaries are public so that even the developers can come and say ok so I'm in the level I don't know 14 I earn 3000 here's more why is that so and then the city can discuss with the guy or the girl can really say ok so if we like to get the raise these are the KPIs of the knowledge or the team you should really be able to handle and get the raise this transparent regime especially here in the region is not widely used minority of the companies are that transparent when it comes to the salaries and the equities but on the other hand it has its pros if communicated correctly lastly some of the shareholders or equity regimes are transparent by nature having said that if you would say ok this is my excel the trust me spreadsheet but I would like to have the official shares registered in the register in the commercial register then actually it's really impossible for you to hide it because it's publicly accessible so then you should also take in the mind the way of the distribution of the equity for you ok so that's all thank you very much so thank you very much um