Startups often face legal challenges in their nascent stage. This hampers their ability to grow and achieve their full potential. An otherwise promising company might fail to make an instant impact and take over the market due to legal hurdles. The goal of most startups is to reach the coveted unicorn status, which means a valuation of $1 billion or more. North America particularly is a renowned startup ecosystem, funded by venture capital. Top infrastructure, unique culture and labor market functionality are driving this sector.
To make the most of the opportunity to kick-start your own business it is necessary to minimize legal issues. This is one aspect where many startups seem to falter. You are obligated to operate in compliance with existing laws. So, learn about the basic legal requirements beforehand. This can help your avoid license revocation and fines.
Here’s a look at some of the basic legalities to take care of for startups.
Getting the Right Business Model or Structure
Register your company under the appropriate structure, otherwise you might end up with adverse tax complications and debt liabilities. The most common entities are:
- Sole Proprietorship: This has a single owner and requires no documentation. Partnership or entity forms are mandatory in case you require additional capital.
- General Partnership: Multiple founders execute the partnership. Each one is equally liable for business debts and profits. An agreement is used to set the rules beforehand.
- LLCs: A hybrid of limited partnership and corporation form of business structure. These are generally formed under state or federal law.
- C Corporations: Most startups are C corporations. They are formed in a state where the business will first start operating.
- S Corporations: A closely held body with not more than 100 stockholders. These are formed under state law and are free of income tax.
Tick off a few points like the number of founders, type of business and how quickly you might start seeing profits. The choice of entity will help you reach your business and financial goals. They you’ll need to prepare the requisite documents to secure the required permits.
Ensuring a Trademark-Free Brand Name
Research well on the US Patent and Trademark Office website before picking a company name to avoid trademark infringement. Sounding very similar to another brand can also confuse your customers. You can also do a general Google search to ensure your brand name is not too similar to any existing name. This also helps with legal protection and registration. Initiate appropriate patents to protect the logo, design and software, if any. Here too, corporate law specialists can help you.
Creating a Clear Employment Manual
This will make ensure that employees are accurately informed, protected and classified. Many startups are unable to pay fair market wages. An equity incentive is offered instead to bridge the gap. These should be documented by a lawyer. Be careful about how you engage employees, since founders might be charged with misclassification. One difficulty is to work in alignment with the labor laws of the state. All regulations, rules and disciplinary actions must be conveyed to your workers beforehand to avoid legal consequences.
Be clear about your tax liabilities, obtain an industry-specific license and protect your intellectual property. Get in touch with the best law firm for the right legal counseling.