Startups have a unique advantage that other businesses do not: they have the opportunity to avoid legal issues in the future through careful legal planning in the beginning. They can work with an attorney to put preventative measures in place and position their business to take a proactive rather than reactive approach to legal issues. With that in mind, here are five of the most common legal issues that startups face.
- Structuring the Business
A principal consideration for any startup is deciding which entity structure is the most beneficial to use. Sole-proprietorships, partnerships, limited partnerships, corporations, S-corporations, and limited liability companies all have their place. Common considerations usually involve the number of founders, employees, frequency of equity grants, limitation of liability, tax treatment and whether there is a need for outside capital. This is an area where it is crucial to consult with an experienced small business attorney before deciding how to proceed.
Having a clear understanding between the founders of a startup is essential to ensuring the lasting success of the business. Founders should think through issues like ownership of the business and equity, roles and expectations of the founders, and the decision-making process.
As your business starts to grow and you need to hire employees or independent contractors, it is important to have appropriate documentation in place to protect the business and its assets. Putting strong employment procedures and contracts in place early can prevent problems later on.
- Intellectual Property
Whether you are a high tech startup or a boutique shop, your business will likely have intellectual property needs. This is another area where it is strongly advised to consult with an attorney. Failing to protect a startup’s intellectual property in the beginning can put a business at a massive competitive disadvantage later on, or even sink the business altogether.
- Customer and Vendor Agreements
In the excitement of getting the startup off the ground, it is easy to treat initial agreements and contracts casually. However, sloppy legal work early on can set your business up for huge problems down the road. An attorney can help ensure that the business is protected as agreements with customers and vendors begin to be put in place.