"An ounce of prevention is worth a pound of cure.” Benjamin Franklin said this many years ago, referring to fire safety preparation. This still holds so very true, however, in today’s startup climate.
The world of startups and small business ownership is a chaotic one. Entrepreneurs and small business owners typically focus on fundraising and marketing, assuming multiple roles to save costs where possible. Initial hires usually include members of the c-suite, perhaps a support team…but counsel often fails to make that list. For a startup, failure to hire counsel is a huge misstep, as small oversights in the beginning cause significant problems down the road, and once you’ve been sued, it’s sometimes too late to recover.
Some of the very common issues that we see include :
LLC vs LP vs S Corp…? A business owner's failure to choose the right legal business entity is a problem from the get-go. Certain types of business entities require that type-specific forms and documents be filed with the government. Compliance with government requirements becomes an issue from Day 1 if the wrong business entity is chosen. Starting an LLC can easily be done online, but if this is not the proper type of entity for a particular business and the necessary elections are not made upon filing, long-term tax and legal consequences very often result.
Asset protection. Many business owners do not know the broad differences difference between a copyright and a trademark. Or what the ‘Registered’ symbol means. Or when a cease and desist order is proper. Asset protection should be on the top of every business owner’s mind, but without the proper legal protections in place, innovations can be easily copied and trademarked by another party.
Employees. Most business hire employees. Some companies contract with independent contractors, some hire employees. In either case, without proper contracts in place, including necessary nondisclosure protections, and in the absence of compliant employment practices and regulatory policies, business owners open themselves to enormous amounts of risk and potential lawsuits.
Nondisclosure agreements. Using internet NDAs is NOT good practice, as most are not strong enough to hold up in court and fail to provide mutual protections. Non-compete agreements, if not precisely drafted to suit a specific business scenario and business purpose, do not hold up in court. Businesses should work with counsel to ensure NDAs are mutually beneficial and allow for necessary disclosure while also avoiding risk.
Have a website? Privacy policies and Terms of Service are required in many states to help protect user information.
Each of the issues above is one that counsel would typically easily manage. Startups and small businesses without internal counsel still need legal protection. Working with a lawyer from the early stages is critical not only to lay a proper legal foundation for the business, but also to maintain ongoing compliance. A bit of due diligence early on will save a lot of money in the end.
Any individual considering starting a business, or any entity needing legal support, should seek the assistance of appropriate legal and tax advisors. Work with Linnane & Associates to build a legal strategy to support your business growth goals! Consult us for some guidance.
Kathleen Linnane is the Managing Partner of Linnane & Associates. Check back for our weekly blog updates about current legal issues of interest, and how changes and updates to the law might affect you and your community.