These startup mistakes can mean the death of your business before it even gets off the ground. Avoid them at all costs, and make sure you get sound legal advice at the beginning, even if it makes a dent in the budget.
1. Prior Employer's Workplace When starting their own company, many startups might work at their employer's facility or on their employer's computers. If you work in an industry that has intellectual property rights, and you signed an agreement when you started at your job, your employer might have the rights to your ideas or company. They could sue for patent infringement or theft of intellectual property.
Make sure that none of the startups' work was done at an employer's workplace. The employer has no rights if the work was done on the employee's own time and doesn't relate to the work done at the company. It's vital that you keep a separation between work and the new startup, or you could risk lawsuits.
2. Founders and Partners The very first step in a startup can often be the one that haunts the business for years to come. When you start the business with a partner or a group, the co-founders have to agree on how the company will proceed. You should discuss how the company is split, the roles and responsibilities of each individual and the procedures if a co-founder leaves. The salaries and shares should be discussed prior to forming the company. The future of the business requires agreements, policies and legally binding documents to ensure that there is a minimum amount of issues later.
As you form the startup, it's important to discuss issues that may crop up at a later date. If one of the founders should be relieved of their responsibilities, what's the procedure for removing that partner? While you might not want to think about failure between partners, it's important to consider how the business will survive if one partner leaves for some reason whether it's death or disagreement. A lawyer can provide legal advice for startups before you form the business.
3. Tax Planning and Form of the Business Unfortunately, many startups don't consider the type of business they should start. If there is more than one owner or founder, they will often form a general partnership, which can expose each partner personally to the debts of the business. The same is true of a sole proprietorship. The owner is liable for the debts of the company.
There are different types of businesses with their own tax advantages like LLCs, C corporations, S corporations and limited partnerships. There are documents that need to be filed for each type of business, and the partners should discuss the right kind of business with a lawyer.
4. Patents, Copyrights and Trademarks While patents can be quite expensive, they are an important aspect of certain businesses. If you're creating something revolutionary like a cure for the common cold, a patent will protect your product and allow you to pursue infringements on that patent. The cost of a patent might be prohibitive for those starting out as a new business. Consider whether a patent will be the best use of your budget. A patent lawyer can help with the process since it can be long and complicated as well as expensive.
Copyrights cover books, music and software, which can be a work product of your new company. It's important to have a copyright to cover original works so they cannot be duplicated. Trademarks protect a word, name or symbol associated with the business so other companies can't copy or infringe on the rights of the company.
5. Contracts From employee contracts to client contracts, it's vital that you have a contract in place to protect the rights of your company. Clearly spell out pricing in the client contract as well as penalties and interest if the payments are not made on time. The contract should have a section on how disputes will be handled.
While you don't have to reinvent the contract from scratch, you should have a lawyer view a standard contract and make adjustments based on your business to personalize it. A good lawyer should have a standard contract that he or she can adjust to suit your business.