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How To Avoid Legal Trouble in Your Startup Company - Finnegan Pierson - Blog

How To Avoid Legal Trouble in Your Startup Company

When you have a big idea, the excitement of getting your startup off the ground almost becomes too much. From creating your product or service to advertising it, there is so much to think about. For many, the sooner the company opens its doors, the sooner a profit can be made. The problem is, sometimes people become so enthusiastic about gaining customers that they forget about the legalities of owning a startup company. Make sure you aren't making these legal mistakes when you open your own business.

Striking Deals That Aren't Clear Enough

If you're opening your startup with a co-owner, you must create a written copy of your deal and both sign it. This prevents any misunderstandings that could lead to big legal troubles for you both in the future. When striking your deal, consider things such as who gets which percentage of the company, which partner holds which roles and responsibilities, what happens if one of the partners decides to leave, and so on. The contract should also outline how much each partner receives in salary, who is responsible for which decisions, and what happens if someone doesn't meet his or her expectations.

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Choosing the Wrong Legal Entity for Your Business

The type of business entity you need to choose depends on whether you want to raise money from investors, how many employees you'll have, and so on. For example, you should only choose a sole proprietorship if you're the only one running the business and doing the work. If you have a business partner, choose a partnership. Some entities, such as an S-corporation or LLC, have tax advantages. If you want to grow your business exponentially, consider a C-corporation. The many types of entities might feel confusing if you're new to the business world. Never guess which one you should choose. Instead, seek the help of an experienced business attorney.

Failing To Provide the Right Employment Documentation

If you intend to hire independent contractors or employees, you'll need to have the proper documentation so they can work legally. For example, you'll need independent contractors to fill out a 1099, which you can create with a 1099 generator. Employees must fill out a W2. Of course, there are other types of documentation you may need as well. These might include documentation for stock options, confidentiality agreements, forms for benefits such as health insurance or retirement plans, and more. Don't forget to create and print a handbook for any employees you intend to hire as well. The handbook should include policies that range from how to do the job, whether employees can use the internet for personal needs, and how they can claim and use their vacation days.

Starting Your Business Without Any Patents

If your business is one based on a brand new idea, you need to get a patent before you open your doors to the public. Without a patent, it is much easier for unscrupulous individuals to steal your intellectual property. In addition to patents, consider trademarks for your company name or slogans, copyrights, or other types of protection to ensure you have full control over your own ideas, products, services, and designs. Consider how partners and employees fit into this as well. If your partner creates your company logo but doesn't sign the rights to it over to the company, then he or she could request you stop using it if you ever part ways. Because the act of protecting your company's intellectual property is often complex, it is another task that often requires a business attorney.

Even if you want to hit the ground running, starting a website and getting customers in the doors as quickly as possible, it's important not to do so when starting your company. Focus on the legalities first. By providing documentation, creating contracts, and protecting your intellectual property first, you help to ensure that you don't hit any major snags further down the line. 

Publish Date: January 16, 2020 6:04 PM

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