A strong legal foundation provides a layer of protection from risks for your business and also attracts more investors. But making sure you’re checking all the legal boxes when fundraising a startup can be difficult and confusing, which is why we’re here to help you cross your T’s and dot your I’s.
Simple steps to make sure your startup is legally solid
The words “legal documentation” certainly don’t sound like a party, but without a foundation built out of those two words your startup is vulnerable to falling to pieces. Worry not, for we have put together a collection of crucial legal checkpoints that plenty of startup founders miss or avoid. By following these guidelines, you’ll be better protected from legal troubles that could otherwise sink your startup before it has a chance to succeed.
Deciding what type of business structure is most appropriate
A business structure dictates how a company navigates tax requirements, what liabilities you may encounter, and even how you’ll raise money and collect income. Incorporating under the proper business structure is important as business owners and their companies are liable to a spectrum of different risks depending on if they are a sole proprietorship, a partnership, a limited liability, or a corporation.
Another consideration is that there are various filing fees for incorporating depending on the filing state and the type of business the startup is.
Protecting your property
This is where being thorough and detailed can save lots of time and earn you money. As an owner, it is highly recommended that you take the time to initiate copyrights, patents, trademarks, and even trade secrets to anything you have created as the business. This can include logos, video, sound bites and music, coding, inventions, software, designs, written word, and much more. Anything that you originally created can be protected legally.
This step generally catches investors eyes as it shows you are well prepared and don’t miss the finer details.
Note that business owners in the United States are now able to complete this step with assurance as the United States Patent and Trademark Service is a “first-to-file” system, rather than a “first-to-invent”.
Searching for investments in the right places
The SEC is very particular about startups advertising, and prohibits general advertising and soliciting when it comes to raising capital. This is why it is suggested to offer and sell securities to an accredited investor(s) which may include a natural high-net worth individual, a bank, insurance company, broker, or trust.
Signing contracts and agreements
Issuing employee contracts and NDAs can save your company’s confidential information, protect you and your employees, and determine who has the rights to certain information. Non-disclosure agreements are meant to protect a company’s business strategy, trade secrets, etc… However, it should be noted that many investors won’t agree to signing an NDA so they aren’t liable if they choose not to invest.
In this case protecting your property through patents and copyrights can be your safety net.
Don’t do it yourself. Hire experts
Perhaps the best advice we can leave you with would be to hire a lawyer to make sure your company’s legal prospectus is air tight.
Hiring employees, attracting investors, producing income, building a business structure, and the safety of your company all rely on the legal foundations that you put in place. It’s worthwhile to make sure you get it right.
March, 14th, 2020