Companies of all sizes have crucial decisions to make, including but not limited to raising funds, creating brand awareness, and marketing the product or service. As a result, sometimes legal issues are put off, or even totally lost in the shuffle, making the company’s long-term performance less than rosy.
However, there are three legal issues that founders should make a priority:
One of the most important decisions to make up front is choosing the right legal structure for the business. Many tech startups wish to register as a traditional corporation, or “C-corp.” Corporations shield owners from personal liability, and many investors prefer investing in this type of structure.
However, corporations face what is known as “double taxation.” The corporation is taxed as a separate entity, and owners also pay taxes on their returns. This can put a strain on limited funds in the early days of a business.
To avoid double taxation, a startup in its early stages can register as an LLC. Although LLCs often have a limited lifespan, they can convert to corporations later.
Every business, especially tech startups, hold some form of intellectual property. Examples include:
- Word trademarks
Startup owners are often tempted to delay investing in intellectual property protection to reduce costs. However, some types of intellectual property lose their protection if owners wait too long.
Contracts perform an essential function for startups. They can outline the employment relationship, stock options, intellectual property assignment, liability, and more. Agreements between co-owners are especially important, as they address risk and ownership issues.
Tackling each of these issues early on can save startup founders from significant legal headaches down the road. For many businesses, consulting with a business planning attorney helps provide a strong foundation for success.