Numerous business owners hope to launch startups, but the reality is a little more nuanced than just having a concept. Things may go wrong quickly, and many new businesses have the same problems. Here are some significant issues that our lawyers frequently encounter.
An entrepreneur or business usually comes into contact with the law for the first time when they establish their firm as a legal entity. LLCs and corporations are the most popular entity options in today’s society. The best entity to choose depends on various variables, such as tax implications, whether the startup has to raise money from angel investors or a venture capital firm, and whether it wants to reward essential staff with equity compensation.
Where to form your corporation is a decision that must be made as part of the formation procedure. Although registering a business with the state is very straightforward, it is crucial to do it correctly and ensure your name is both available and protectable.
Lastly, running a business without creating a legal entity with the state makes the owners individually responsible for any issues that arise with the company. Additionally, since having limited liability is one of the significant advantages of owning a firm, it’s crucial to establish it before your enterprise is ready to conduct business.
Hiring a Professional Business Lawyer
Whether you recruit independent contractors or employees, a contract outlining the specifics of your company’s relationship is essential. Important contract provisions that should be defined in these agreements include information on employment responsibilities, pay and perks, and grounds for termination.
One common misunderstanding among business owners is that they must select whether to engage employees or independent contractors. However, this is only sometimes the case. A business lawyer can assist you in directing the minor to central legal counsel.
The IRS has complicated criteria to decide whether a person qualifies as an independent contractor. This is significant because incorrect classification can generate tax, financial, and legal issues.
Start Ups: Reasons for Hiring a Business Lawyer
1. Concession by the Founders
While creation creates a legal entity with the state in which the corporation is incorporated, agreements among the founders are just as crucial. These agreements are essential because they spell out who is responsible for what tasks, who has the authority to make specific decisions, and how to proceed if one of the founders needs to leave the business. This mainly consists of operational and buy-sell agreements for an LLC.
Founders’ agreements for corporations take the form of shareholder agreements, restricted stock purchase agreements, corporate bylaws, etc. Although some business owners want to delay these choices, it is much simpler to handle this kind of paperwork early on when everyone is still on good terms than it is later on when significant money is at stake or tensions are high due to a dispute.
2. Takes Care of Rentals and Lease Terms
Co-working spaces are a terrific alternative if a normal startup doesn’t meet with clients in the office because they are short-term leases that might not require legal advice. However, if your company is the kind that needs its own premises, such as a restaurant or doctor’s office, you will need to sign a longer-term commercial lease.
Given how landlord-friendly commercial leases typically are, this is one of the agreements that a startup or any small firm should avoid signing. An attorney can ensure that your business is better protected than it would be if you negotiated the lease and assist a startup in determining if the lease terms are reasonable for the market in which you operate.
3. Guarding the Company’s Reputation
You’ll want to ensure that your name and brand are protected as your business expands. With trademark protection, you may ensure that other companies cannot legally use your name, logo, or even names or logos similar to yours, which could lead to customer confusion.
4. Handling of Websites and Documentation
The conditions of usage or service are the second. Even if you’re not asking someone to sign an electronic contract, you still need to lay out the rules of their website usage, especially if there is a contractual component since a visitor is purchasing a good or service from your website.
5. Business Lawyers are in Charge of Creating Agreements
Industry factors play a significant role in determining the binding contracts for any organization, but all startups have meaningful interactions that a contract should appropriately document. If you are a website developer, your development contracts with your clients will be your most important ones. These will outline the work’s scope, make clear that the developer is an independent contractor, and establish the amount and frequency of payment.
Binding contracts for a restaurant can be catering agreements or contracts with suppliers. Licensing agreements and terms of service are frequently critical to SaaS businesses.
Depending on the nature of the business, the company may require basic contracts to include confidentiality agreements (also known as NDAs), non-compete agreements, and non-solicitation agreements.
6. Capital Obtaining
For certain startups, raising money is crucial to growing the company. At the most fundamental level, you can raise money in one of two ways: through debt or equity. The capital raise must be appropriately documented.
A bank loan or a loan from family and friends are the two most common ways to raise money through debt. As an alternative, you can sell ownership in your business in exchange for cash that will be utilized to expand it by raising money in the form of stock.
There are pretty significant limits on how you raise money and the kinds of disclosures you offer to various investors if you want to go the stock route. Because there can be serious repercussions for not abiding by the securities rules regulating such transactions, the procedure can be challenging to manage, and it’s crucial to ensure that money is raised correctly.
Start up businesses are prone to legal errors, given that they are just starting. To handle legal business matters accordingly, it is essential to seek help from professional business lawyers. This way, your start-up business will start with a clean slate, and you’ll have a few less things to worry about.