If you’re starting a business, as the founder you focus almost all your energy on getting the product or service off the ground or securing funding for it. It’s hard out there for an entrepreneur, especially with all the corporate consolidations and mergers going on. However, it is important to also consider getting a lawyer for your startup company.
It may surprise you to know that there are a million different ways you can run into legal trouble with a business. This is why a lawyer can help you chalk out a great business strategy. So considering a lawyer is not a bad idea early on.
Here is a list of issues that your startup will require lawyers.
Incorporating the Startup
Incorporating your business creates a barrier between the individual entrepreneur in question and the business itself. There is now a legal wall between you and the company, hence you cannot be held personally responsible for everything that happens with the company (debt, liability, etc.)
Think of yourself as a vessel independent from your company. You still conduct business through your startup company, it employs people, holds an IP and pays taxes and does everything a business does; however, it exists as its own separate entity. Hence, the founders and the entrepreneurs running it are not the party that deals with any transactions.
Partnership Agreements
A business becomes a partnership when there is more than a single founder. In this agreement are drafted the bylaws that the startup company makes for itself depending on its form. This is crucial to avoid future litigations and lawsuits that may arise due to an internal conflict or an external threat.
These issues include profit sharing, equity splits, decision marking and the division of professional responsibilities. A very common mistake made by entrepreneurs is that they wait too long to enter into agreements like this.
Employment Issues
Any business requires additional manpower as it grows. You need to acquire an employer identification number from the IRS (Internal Revenue Service) before you hire your first employee. (Also known as an FEIN.) It’s also very important to conduct due diligence, or background checks on candidates to ensure that the employee has a clean history and that their work authorization is clear. This includes finding out if the employee has a non-compete, has a work permit if he/she is from out of the country, or if the employee has a criminal record.
Intellectual Property
If you’ve watched the Social Network, the Academy Award winning film about the founding of Facebook, you know how important intellectual property is. If you have an idea, there is no guarantee that someone else hasn’t had it before or at the same time as you. The only thing that matters is how quickly you can patent that idea and legally make it yours.
Startup companies should patent their services or products as soon as possible. An IP lawyer can help you file the relevant patent applications if you need. You should deal with this process as early as possible. Publicly disclosed inventions lose their patentability in the US within a year.
Circumventing Regulatory Environments
Startup Companies can be subjected to any number of regulations that you are unaware of. These regulations can affect your business without you even knowing it. Hence, it’s important to have a lawyer that can talk you through various laws and tell you exactly which jurisdictions you fall into. This can include government bodies such as the Food and Drug Administration or the Environmental Protection Agency.
Other than that, you could also be in violation of zoning laws, ethical codes or housing laws depending on where you set up shop. When all those fines start piling up, hiring a lawyer seems more and more economical.
Data Privacy Issues
Most businesses today are tech oriented, and most products or services have a website. If not, they definitely do have a presence on social media like Facebook, Instagram, or LinkedIn. If you do have a website for your startup company, you should consider generating a user agreement. They detail the user code of conduct and can save you a lot of trouble if there is a lawsuit brought against you by a disgruntled user.
The agreement can issue a disclaimer for links to third party websites; it can include a privacy policy which outlines how user data will be used by your company. Different states even have different laws for websites existing within their digital territory.
Issuing Shares to Co-Founders
This is a major step after incorporation. Assuming you already have hired lawyers for that step, you will need to retain them if you want to issue stock options to employees and co-founders. It’s an accepted practice for co-founders and even entry level employees to be issued stock as compensation for their services. A recent example that comes to mind is Snap Inc.
An attorney can help you decide what the appropriate vesting schedule is. This means that stock will only be issued to employees and founders after a certain period of time and after certain criteria are met. This is essential because you only want to give stock of your valuable startup company to people that you know are loyal, and that won’t branch off into their own business or leave at the drop of a hat.
Financing your Business
Outside investors are incredibly important to a growing startup company. Apple, Facebook, Microsoft, Snap Inc. Uber, and every other major startup company that became a mover and shaker in today’s world has had to deal with outside investors.
Hiring a lawyer to draft agreements between the company and the investors is the right thing to do. These investors, maybe new, and they maybe sharks of the finance world. It’s better to be prepared to play ball with them no matter what.
No matter how you look at it, hiring a lawyer or lawyers for your startup company is a great idea.