Nibletz Staff
Every founder’s dream is to see their company grow. But taking a business to the next level often requires seeking outside investment. To ensure that a company is prepared to receive investment, and to make use of the opportunities and challenges that growth creates, there are a number of crucial, yet often overlooked, legal steps to take. Here are five of them.
Chose the right legal entity.
The corporate structure you chose determines your company’s taxation, allocation of profits and losses, record-keeping requirements, and general structure. When incorporating your company you have several options. The most common include an LLC, S Corporation and C Corporation and your choice should depend on your goals and objectives. While your entity can be changed down the road, you can avoid this by working in close consultation with your lawyer and accountant from the get go. If you plan on seeking investment soon after starting your business, establishing a C Corporation at the outset may be the best option.
Put a founder’s agreement in place to guide internal affairs.
If you’re starting your company with another person or group of people, a founder’s agreement is absolutely essential. A founder’s agreement creates the framework of your partnership and governs the internal affairs of your company’s operations. Your agreement should outline the duties of the founders, key decision-making processes, as well as how disputes and unforeseen circumstances will be handled; however, before you go forward with these have an attorney from a law firm such as Legalzoom review the document before signing the agreement to ensure that everything is in order.
There are bound to be bumps in the road as your business grows, so it’s best to have a comprehensive document in place from the beginning that will govern how decisions will be made.
Have a good non-disclosure agreement.
Non-disclosure agreements (“NDA”) are critical to establish in any business relationship where confidential information may be shared. People who have access to your company’s confidential information must have defined standards about how they can use and access this information. Ensure the obligations of confidentiality extend beyond the term of the NDA, as this information is essential to the integrity of your business.
Protect your company’s “IP”.
The core of your business is your intellectual property or “IP.” As such, you must legally protect your property by filing the proper trademark, copyright or patent applications. This ensures that you have recourse to protect it, if infringement occurs. But not only should you be keeping these traditional protections in place; you need to ensure that you are contractually maintaining ownership rights over any intellectual property being created for your company by any outside contractors. These protections help you maintain the core of your business.
Make sure your documents are in order.
Anyone looking to invest in your company will conduct extensive due diligence. This will include looking over your company’s books and reviewing your corporate documents, agreements and contracts. They will want to know you have appropriate licenses, permits and reports, and that you are adhering to all existing contracts with employees and service providers. This will show potential investors that you are professional and free of potential legal obstacles.
Having your legal house in order ensures that your company is ready to take advantage of investment, to grow, and to handle the challenges that will arise. Think ahead and imagine where you want your company to be, and then make sure that you’re prepared to get there.
DISCLAIMER The content in this article is for informational purposes only and does not constitute legal advice. Readers should contact a qualified attorney to obtain advice with respect to any particular issue or problem.
Tricia Meyer is managing attorney of Meyer Law, a forward-thinking boutique law firm providing top-notch legal services to clients ranging from startups to mid-sized companies to large corporations in a variety of industries including technology, telecom, financial services, real estate, advertising, marketing, social media and healthcare. Learn more at MeyerLawGroup.com and follow us on Twitter @Tricia_Meyer or@
Nice article, Tricia! Full of advice I see too many startups miss.
On your point about Intellectual Property, I’d add that it’s also critical to clear your use of IP BEFORE you begin using it. I see too many startups run into legal issues that could have been avoided had they done proper searching to clear their use of technology, trademarks, etc. before they launched.
Startups can do a lot of the initial searching on their own, but before committing to a brand name, for instance, they should consider touching base with their lawyer to make sure they’re not walking themselves into an infringement action.
Best of luck!
Thanks, Brian! Great tip! I absolutely agree!