What’s the best legal advice for startups? The short answer is: Avoid litigation.
Starting a new business can be challenging, and startups especially can be high-risk ventures, which is why founders need to protect themselves from unnecessary litigation ahead of time.
Identify Some Key Founders’ Dilemmas
Startup founders should get legal counsel to tackle some fundamental issues which could lead to legal problems down the line if not clarified and formalized at the outset — for instance:
- How should you divide up equity between founders?
- What happens when the initial startup phase is over and you start to shift and change?
- How will decisions be made?
- Who will make valuable partners?
- How will you make money for investors?
- How big should the entire team be?
- How many co-founders should be on board?
- Who is responsible enough to commit to the role of CEO?
- Can you agree on slow and steady growth, or is a push for more financing important at a given phase?
Qualified business attorneys have the knowledge and tools to not only offer sound legal advice, but help them to develop sound business contracts, merge, sell, mitigate disputes, and more.
Hire an Attorney to Get Help With Important Documents
All businesses need to draft important documents in order to ensure that certain elements of the business are solidified upfront.
These documents include:
- Entity Formation Documents
- Certificate of Incorporation
- Issuance of Stock
- Shareholder Agreements
- Documents pertaining to licensing and by-laws
- Intellectual property agreements
- Privacy policies
- Vendor contracts
Learn more about the 5 documents you need before starting a corporation.
Don’t Mix Business and Personal (Finances)
There’s a principle in law called “piercing the corporate veil,” which refers to the fact that business owners can be made personally liable for things that happen in their business.
When deciding what type of entity to have — a corporation, LLC, or another business model — you are essentially forming an organization that is by nature separate from you, personally and you are not liable for the debt.
But sometimes litigation can happen which “pierces the corporate veil” if financial matters aren’t handled responsibly.
When seeking legal advice for startups, founders should develop agreements carefully and in line with realistic financial guidelines to avoid this.
Immigration & Employment Considerations
Startup founders and CEOs need to stay on top of employment laws as well as laws pertaining to hiring remotely in other countries.
Ethical and legal considerations regarding hiring may include:
- General employment contracts
- Non-disclosure agreements
- Policy manuals
- Federal anti-discrimination and disability laws (per the EEOC)
- The treatment of independent contractors
- Visas and work authorization
Before you hire employees, make sure you get sound and updated guidance pertaining to hiring and employment standards.
Watch the Fine Print in Your Contracts
When it comes to legal advice for startups, the “fine print” will prove an important consideration as you develop contractual agreements with other entities.
And on the flip side, a legal attorney can help you understand the fine print in contracts that are handed to you to sign.
The main tip here is to ensure that you’re not signing into anything that you can’t handle.
Make sure that you can get out of the contract or amend it if needed, and that you’re not putting yourself in a risky situation.
Stay on the Good Side of All Stakeholders
Although this may be stating the obvious, anyone who invests in your business needs to feel respected.
Specifically, when it comes to shareholders, business owners owe them:
- The duty of care and
- The duty of loyalty
Just because you can do something in the business, doesn’t mean you should. Open avenues of communication are paramount when care and loyalty are on the line.
And put bluntly: when people get mad, they sue.
The simple rule of thumb is: be nice. Avoid unethical behavior or worse. Reckless behavior makes people want to cover up mistakes which only leads to worse problems.
And have a trusted attorney on your side who can guide you towards the right steps you need to take to avoid getting sued.
Define Intellectual Property (IP)
It almost goes without saying that privacy and intellectual property are of key importance in the digital age, especially if your startup is tech-related.
Still, working through the ins and outs of this can be challenging and even subjective, which is why legal advice for startups is so crucial in the pre-seed phase.
Decide ahead of time how you will:
- Keep information secure and protected
- Define intellectual property
- Ensure that employees respect the intellectual property
- Learn about any prior IP agreements when new employees come in
- Deal with IP issues through management changes or when founders leave
Our Attorneys Will Ensure Your Business is Protected
If you’re new at the startup game, having a business lawyer will be an essential part of ensuring that due diligence is followed with respect to ethical, financial, and legal practices.
We’d be glad to offer consultation about your new startup or any other business law issues you’d like assistance with.
Call us or schedule an appointment today.
Enjoy this article? Here are three more that might be of interest:
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7 Reasons Why a Written Contract is Necessary
How To Manage Paycheck Protection Program Loans Through A Change Of Business Ownership