Legal Issues and What All Start-ups Must Know to Handle Them

It is very common to see start-ups spending a large chunk of their time thinking about business growth, innovative ways of marketing, sourcing funds from investors and venture capitalists, and hiring excellent staff. But what they forget at times is the legal side of running a business. Moreover, many companies step away from engaging a legal expert in the initial days to save money. These entrepreneurs also get into one-sided deals, fearing losing out on investors.

They often do not read agreements properly in the process. Thus, it often leads to tricky situations that surface sooner or later. Ignoring or failing to understand the law can have a far-reaching impact on every enterprise. To keep yourself safe from the authorities, you must read about a few basics of the legal framework here.

Choosing A Legal Entity

Most start-ups get funding in informal ways. Friends, family, and known acquaintances often lend money to support your dream. However, after you have crossed the initial stage, investors will want to understand the legal framework of your business. Most would be wary of investing in proprietorship businesses.

The minimum standard that one looks for is a limited liability company (LLC). Therefore, you should set up a proper legal entity in the initial stages of your business. Thus, investors will feel more confident about investing in your industry.

Making Proper Agreements

There will be conflicts at one stage or the other in any business. Founders, Directors, and shareholders often get into altercations over shares and funding. That is the reason why you should be vocal and clear about the roles and responsibilities of the individuals concerned. When preparing the agreement, you need to put all of these on paper. This is where you need the support of a small business attorney. This professional can help you with all the legalities of the business from scratch. Moreover, you can be sure that you are on the right path.

Taxation of individuals and that of companies differ

An ordinary individual like yourself can’t keep up to date with changing norms. However, your legal help will be in a position to deal with such things, as it is their job. When getting the agreement finalized, ensure to include the share percentage, rights, duties, liabilities, equity contributions, and status for all the key managerial people. When conflicts arise in the future, your agreement will help you get justice.

Protecting IP Rights

Start-ups are often involved in giving birth to a niche segment or business. There are many risks involved in losing your rights to someone who has copied your idea bluntly. Therefore, you have to be clear about the primary IP or intellectual property rights. It involves patents, copyrights, and trademarks. You have to ensure that they are not stolen or misused by others. Your investors might also want to see what intellectual property rights you own.

Sometimes, disputes arise when employees create a niche idea or product for their company and want to keep ownership. To avoid this situation, you have to put clauses in their employment agreement beforehand. This will stop them from exercising any ownership of the invention. Moreover, IP rights are often granted to individuals. So you have to take the prerogative to transfer them to the company.

Understanding Taxation and Accounting

Taxes are an essential part of all businesses. There are a variety of taxes. What taxes apply to your business will only be clear when you have legal counsel on board. Most start-ups do get some leeway in taxation in the initial years. That is because the government also wants the economy to improve. However, once your basic tax kicks in, you could be seeing more money flowing out than what’s entering your bank. Therefore, you have to get rebates, exemptions, and claims to save on your profits at such times. Here again, you need help from the experts.

Making Employee Contracts

Your employees are your assets. No matter, what your employee strength is, you need male employment contracts. You do not need a 10-page contract. But do not forget to include essential elements like confidentiality, IP rights, and entitlements. These can create many problems if not handled carefully in the future. Your investors will also look into these. The absence will lead them to believe that you and your company are unprepared and not organized.

These are just a few critical legal matters that you need to consider. There may be plenty of others. No matter what, you will need to get someone to advise on these matters on a day-to-day or on-call basis. Seek the best according to your needs.

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