Building a startup in any industry requires navigating legal issues. While the specific legal matters one company encounters may vary from those of another business in a different sector, there are certain situations all founders should be ready to address.
The following are some of the more noteworthy. If you’re starting a business, make sure you’re ready prepared to handle:
Choosing a Business Structure
There are many different types of business structures to consider when building a startup. Each has its own pros and cons. You need to research your options to determine which is right for your needs and goals.
You might not consider this decision to be a legal matter, but it does qualify. The business structure you choose will impact everything from what you pay in taxes to how you acquire funding. Understanding these topics thoroughly is key to your success.
Entering Into Contracts with Co-Founders
Many people create startups informally with people they already know. From Apple to Facebook, plenty of the most dominant companies in history started as passion projects among friends. Anyone who has seen The Social Network knows this doesn’t always end well.
Avoid seeing your business become the subject of a Hollywood courtroom drama by entering into a founders’ agreement early. This agreement should touch on ownership shares, responsibilities, salaries, and all other details that may lead to conflict later if they aren’t addressed now.
Drafting Non-Disclosure Agreements
You won’t draft NDAs yourself. You’re much better off coordinating with a legal professional. If you don’t have the proper expertise, you could draft a document with loopholes you overlooked.
That said, this is an important legal step all founders must take. You don’t want someone leaving your company and sharing confidential information. You need to determine what type of information is confidential, and work with an attorney to create documents protecting it.
Drafting Employment Documents
Again, you shouldn’t draft any legal documents without the proper knowledge or experience. This is yet another case when you need to work with a professional.
It’s also another important step to take sooner rather than later. As your startup grows, you’ll eventually expand your team. You need to be prepared to do so by ensuring you’ve gathered the necessary employment documents for all new hires to review and/or sign. This includes tax forms, official job applications, “at-will” employment letters, NDAs, official contracts, and any other relevant documents. For instance, if you offer stock options, you need employees to sign the appropriate forms confirming they understand them.
Offering Privacy Policies
Protecting Intellectual Property
Sit down with your co-founders and determine if you have any intellectual property that needs to be protected. Obviously, an invention typically qualifies for a patent. An algorithm, on the other hand, may not qualify for a copyright. You need to determine what type of intellectual property you have, and what you can do to protect it, knowing that some intellectual property might not qualify for full legal protection.
These are all important topics to research and discuss early. As momentum picks up, you want to focus on running your business. Handling these issues now prevents legal problems from distracting you later.