Startup Legal Issues
While a lot of entrepreneurs at least have a basic understanding of the law, most of them fail to think about the legal implications of starting a company. Many startups who are trying to save money on hiring attorneys are turning to online legal service companies who provide low cost “boilerplate” contracts.
However, there are numerous unforeseen pitfalls with using these types of contracts when it comes to ensuring that your new company is legally sound. In general, a new company should be legally sound from the get-go and one of the best ways to ensure that is to consult with an attorney. A good attorney will be able to properly advise you and tailor their advice to your particular situation.
Here are some common legal issues entrepreneurs will face:
Legal Advice For Startups
1. Is my business compliant?
Corporate compliance affects companies in all types of industries. It is important to find out what type of records and other documents should be generated and maintained by your business. The laws, which apply to your business, will vary depending on a range of different factors, such as what type of business entity you are and what state you do business in. As a result, it’s usually important to consult with an attorney to ensure that your company is compliant with any federal and state laws that might apply to you.
2. What business structure should I use?
There are multiple business structures available and using the best structure can be critical to ensuring that your company is successful. For instance, are you interested in having your company go public in the future or do you want to remain a private company? Are you planning on taking on investors or will you be privately funded? What type of growth do you predict your company will have in the future?
The answers to all of these questions will lead to structuring your company in a variety of ways.
3. How should I avoid legal problems with employees?
Generally, every company should limit their liability as much as possible before taking on any new employees. Typically, company owners should have an employee handbook in place and ensure that all new employees sign an acknowledgement form stating that they received the handbook. The handbook should address everything from the company’s sexual harassment policy to the office dress code.
4. Am I properly protecting my personal assets?
It is always important for a company owner to keep their personal and business assets separate. The best way to do this is to maintain a separate business bank account and only pay for business-related items and expenses from your business account. In the event that a creditor sues you, they may be able to seize your company’s assets if they were purchased using your personal funds.
5. How should I structure a partnership agreement?
Many new companies fail due to the fact that there never was a well-written partnership agreement in place that spelled out the duties and obligations of each partner and covered all issues that could have arisen in the future. For instance, will the partners agree all company decisions on unanimously or by majority rules? How much equity will each partner have in the company? How will company assets be split up in the event of dissolution? All of these issues and many more must be tackled and addressed in a comprehensive partnership agreement at the outset of forming the partnership.
6. Am I properly protecting my business name?
A large amount of companies begin using a name only to find out that another company has already been using that exact same name. A company should usually do a trademark search on the web and with the USPTO to ensure that a business name is available. An attorney can help you register your name as well as a logo and assist you with protecting against anyone infringing on your intellectual property.
7. What should I do if I get sued?
In the event that your company is sued, it is ideal to try and settle a lawsuit prior to going to court. An attorney can use their negotiating skills against an adverse party and work towards settling with them and saving your company the risk of going to court and potentially losing your case. In the event that a case cannot be settled, it’s best to consult with an attorney on the best strategy for winning your case in court.
8. Should I use a non-disclosure agreement?
If your company is looking to share propriety information with another company with the intent of potentially forming a joint venture, then it might be appropriate to have a non-disclosure agreement in place. It is important to make sure the non-disclosure agreement is very detailed and lays out exactly what proprietary information will be shared. Otherwise, you might risk losing valuable work to a competitor and cause major setbacks in making your company a success.
9. Are oral contracts enforceable?
Although it’s a common misconception, oral contracts may be enforceable. However, there are some contracts that are governed by the Statute of Frauds, which is a collection of statutes requiring certain contract to be in writing. For instance, under the Statute, which has been adopted in most states, agreements to pay another’s debt, contracts for over a certain amount of money, and contracts that last longer than a party’s life must be in writing. In general, which oral contracts may be enforced, contract law doesn’t favor oral contracts since they’re often difficult to prove.
10. Do I need an attorney or can I do it on my own?
Sometimes, you might perceive a legal problem to be small when in fact the problem can potentially impact your business in ways that only an attorney can foresee. While you can certainly read up on a particular legal issue if you have the time, it’s best to consult with an attorney who can anticipate various legal pitfalls your company might encounter.