Entity Formation

You May Need Some Legal Advice—7 Reasons Why Seeking Legal Advice Now Will Benefit Your Startup in the Future

Posted by on Jun 6, 2019 in Entity Formation, Governance, Intellectual Property, Startup, Your Entity

So, you’ve decided to start a business. You may be wondering, is it really necessary to consult with an attorney right now? The answer—it all depends on the nature of your business and how much risk you are willing to take. Small legal mistakes when establishing your startup have the potential to affect your business’ success and cost you and your startup financially in the future. We understand that hiring an attorney is daunting for a new business operating on a limited budget. However, there are a few business areas for which you should consider seeking legal advice early on in the life of your startup. 7 Reasons Startups Should Seek Legal Advice Now for Future Benefit: 1. Entity Formation: There are many different legal entity forms a startup may take—a sole proprietorship, general partnership, joint venture, limited partnership, corporation, or limited liability company. Each has pros and cons and different tax implications. Picking the right form for your startup has liability, legal, tax, and financial implications. While information on entity formation is available through the U.S. Small Business Administration and other resources, an attorney can advise you on which business structure is best based on your business plan and goals, as well as your personal liability and tax expectations. 2. Structuring Ownership, Control, and Responsibilities: If your startup has more than one owner, it is recommended that your startup have certain agreements prepared that outline the relationship between the owners—such as who has what responsibilities, who has the power to make certain decisions, each owners’ financial interest in the startup, and how to handle ownership termination. These agreements often take the form of operating agreements and buy-sell agreements for LLCs, or bylaws, restricted stock purchase agreements, and shareholder agreements for corporations. Ultimately, formal owner agreements help prevent future disputes and the need to hire a lawyer to resolve such disputes. Although such agreements may not seem like a priority in the early stages of your startup, they can be key to the future stability and security of your business. Additionally, these agreements are often easier to negotiate and prepare during the honeymoon phase of your startup, rather than down the road when money and emotions are involved. 3. Conducting Business Through a Website: If your startup conducts any business online, it is going to need a Privacy Policy and a Terms of Use Agreement. A Privacy Policy is a legal statement on a website that describes how personal data collected from users and customers of the website will be used. A Terms of Use Agreement is a policy on a website that describes the terms and conditions of users’ use of the website. Beware of blindly copying policies from other websites that offer similar services to your startup—often, policies are tailored to a specific business and will not provide you with adequate protection. An attorney can produce a custom Privacy Policy and Terms of Use Agreement for your website that provides you with the specific liability protection your startup needs. 4. Regulatory Compliance: Depending on the character of your startup’s business, you may be subject to state and federal regulations. An attorney can advise you on which regulations your startup is subject to and the steps your startup must take for compliance. 5. Protecting Your Startup’s Brand: Whether you plan to grow your company on a local, national, or international scale, you will want to ensure that your startup’s brand is protected. By acquiring a trademark in your startup’s name and logo, you can prevent other companies from using your name or branding (or a confusingly similar name...

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The Importance of Governance in the Lifecycle of a Startup

Posted by on Oct 16, 2018 in Entity Formation, Governance

Governance refers to the “governing” or “decision-making” of a company. It helps ensure a company runs smoothly, but also that it operates equitably and appropriately to benefit all stakeholders. A common misconception is that governance is an issue for large companies and something that startups can address in later stages of development. While startups tend to be more focused on growth and viability than structure and management, establishing a governance framework is essential to manage expectations of early investors, partners, owners, and other interested parties that have an interest in the company’s success. Below is a list of items to consider when forming your legal entity and defining roles and responsibilities. When forming your legal entity: Choose an appropriate legal entity early that considers present and future growth, long-term structure and business goals. For example, LLCs and LPs can be problematic for a company anticipating venture capital funding Avoid exposing founders to personal liability (i.e. partnerships have unlimited liability) Ensure that business activities are conducted through the entity and not in a personal capacity. When defining roles and responsibilities: Formalize relationships and avoid casual business relationships (even between family and friends) Formalize in writing the roles and responsibilities for each founder and owner (i.e. day-to-day operation) Record all ownership percentages (i.e. of the founders, and other owners) Create a mechanism for dispute resolution (i.e. how to break a tie) Address the possibility of a founder’s or other owner’s departure from the company Important legal documents for establishing roles and responsibilities: Charter or Articles of Organization Bylaws or Operating Agreement/Founder’s Agreement Stockholder Agreement IP Assignment Agreements Non-Disclosure Agreements Meeting Minutes and Board Resolutions Decisions made now will impact and shape decisions made in the future. Defining structure and roles and responsibilities early on will save time, define, and maintain company culture (i.e. ideas, goals, brand, etc.) and decision-making, and make the company attractive to investors. If your startup or business has questions about governance and entity formation, our team is happy to help you navigate these decisions based on your unique...

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