• February 2020
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What are the basic laws of startups everyone should know?

Well, in the direct legal sense, the laws that apply to your startup would depend on your country and your direct location. If you’re in the United States, then you’d want to keep both federal and state laws in mind. Speaking of state laws, if you incorporate your startup in one state and plan to do business primarily in a different state, you must also keep the rules of the other state in mind (including the need to register your business as a foreign corporation).

Now let’s talk about startup laws in the sense of things you should do to maximize your chance of success. In addition to the following lists, there may be specifics that you should focus on depending on your chosen industry.

  • Be in total agreement with your co-founders. Everyone, and I mean everyone, involved as a co-founder should be on the same page. Put in writing the percentage of ownership of the company each person has, whether the percentage of ownership is based on vesting or other consideration, what happens if a co-founder decides to leave, what sort of time commitment is expected from each co-founder, the salaries to be paid, how daily and key decisions will be made, how a co-founder may be terminated as an employee, assets or cash each co-founder has invested, what will happen if the decision is made to sell the business, what happens if a co-founder doesn’t fulfill their obligations, and the goals and mission of the business.
  • Do your research on the best business formation for your startup.You’ll want to think about tax ramifications, the price of creating the business entity, how much “power” each co-founder has (because some business formations can involve things like silent partners), and the regulations that your entity must follow because of how it is formed.
  • Get a standard contract drafted that you can use for your startup.This contract will act as a template that you can modify. One of the best things you can possibly do is get a business attorney to draft one specifically for your business. It is money well spent.
  • Understand and comply with securities law as it pertains to issuing stock. If your business will issue stock interests, you must comply with certain laws unless the issuance meets some legal exemption. Otherwise, you could face serious fines and other repercussions.
  • Document, document, document when it comes to employees.Employment offer letters, stock option documents (if your business will have stock), NDAs, handbook, the proper tax forms, and benefit forms all need to be provided, signed, and kept on file.
  • Protect your intellectual property. This could be with copyrights, trademarks, or patents depending on what your startup uses for branding, develops, or provides. Just keep in mind that once you go through the legal steps to protect your intellectual property, it is still your responsibility to enforce your rights.
  • Pay attention to your tax responsibilities. This starts from the very moment you chose your legal formation. It also includes payroll, IRC Section 83(b), possibly sales tax, tax incentives, and a host of other issues.
  • Choose the right name. You have to make sure that no one in your state is using that name or using one that would be confusingly similar. You also have to consider trademark or domain issues as well.
  • Have a solid Terms of Use and Privacy Policy. Do not just go onto a website and copy and paste theirs. Get one that is drafted specifically for your website. A business attorney can help. It really is money well spent.
  • Have a quality business attorney at the ready. You may not need them every day, but you could need them at some point. It is much easier to have one available to you if the need arises than to try and find one if a legal problem rises up.

I hope this helps. If you’d like to talk with an attorney who focuses on startups, check out LawTrades. We’re a marketplace of entrepreneurial-minded, vetted attorneys who provide services for a fair, flat-rate. We offer start-to-finish project management, a satisfaction guarantee and quick turnarounds. We’ve helped thousands of startups and hope to assist you as well!