When it comes to starting a new business, you need to handle a long list of tasks as an entrepreneur. From market research to setting up the physical office, recruiting a team, and getting started with the operations, the to-do list is often unending. Amid the chaos and excitement of starting your dream venture, it is often easy to overlook the legal implications of startup establishment. You may also pay less attention to these critical issues due to the sheer lack of experience. Here we show you a legal checklist that may help you on your journey.
But sidelining the legal side of setups can land an entrepreneur in big trouble eventually. You may face a lawsuit and disruption of business, while the financial consequences may be equally daunting. So it makes sense to go the extra mile to be aware of these aspects and implement the right measures right from the start to be on the safe side. Having an expert startup lawyer guiding you through the initial journey is a plus. Additionally, we have a 7-step checklist that can be of great help to ensure that your startup is on the right side of the law.
Step #1: Company registration
If you are planning to set up a business legally, you will need to register it first. Everything boils down to the right choice of legal entity for your new venture. While you may consider simple structures like sole proprietorship or partnership to start with, it is better to pick a company structure from day one. You can seek an expert’s advice to choose between LLC, S-Corporation, and C-Corporation structures depending on your current plans and future vision. As you register, it is also important to get legal protection for your intellectual property, such as brand name, logo, and trademarks, so that you don’t end up losing your competitive advantage.
Step #2: Founders agreement
Once you are legally registered, the next step is to draft an agreement for the founders and have it signed by all coming on board. A written agreement between the founders keeps the business safe and prevents disputes between them in the future. Even if there are disputes later, a well-drafted agreement will have clauses for resolving or exiting a founder who doesn’t want to stay. It is best to have an expert drafting the startup agreement because the right legal language matters the most when it comes to ensuring complete legal protection for your startup.
Step #3: Employee contracts
As an entrepreneur, you may have a small team, but employee contracts still matter greatly from the legal perspective. Once again, ensure that you have written contracts with all the clauses related to wages, benefits, leaves and holidays, appraisals, and termination. Also, include a non-disclosure clause that binds the employee not to disclose corporate information elsewhere. Ensure that everyone who joins the company reads the contract thoroughly understands the clauses and signs to give their consent.
Step #4: Personal injury claims
An aspect that most startup owners tend to ignore is legal coverage for personal injury claims. Even as they happen once a while, the impact can be massive as you may have to pay huge compensation. If someone gets injured due to an employee’s negligence driving a business vehicle, you can expect them to speak with a car accident attorney now and file a lawsuit against your business. The same can happen for premises liability and defective product claims. It makes sense to have a plan in place to deal with such lawsuits, along with adequate insurance cover as well. Ideally, the coverage should be enough to provide for lawsuits and potential compensation claims.
Step #5: Supplier contracts
Even as a new venture, you will have to deal with multiple suppliers in doing business. These may include suppliers of goods and independent contractors who sell services to your company. Having legal contracts duly drafted to address a range of different situations and signed by the suppliers and vendors will keep your companies safe from disputes and hassles in the long run. It is best to have these contracts drafted or at least reviewed by a business attorney.
Step #6: Tax issues
Another form of legal coverage that your startup would require from the initial stages is for tax treatment. It starts right from the time you register because the entity you opt for decides your federal tax treatment. Understanding the IRS treatment of businesses is often tough, and it is best to have a tax specialist by your side to ensure that your taxes are on track. Even if you fail to file or pay them due to some reasons, they will handle the negotiations with the IRS to keep your startup out of trouble. The last thing you would want at this stage is legal hassles with the tax authorities, so make sure that you are ahead of the tax laws.
Step #7: Compliance fulfillment
A legal aspect that most entrepreneurs fail to take seriously is compliance fulfillment. However, failing on this front has more serious implications than you can imagine, which means that you should go the extra mile to ensure compliance. There are industry-specific regulations that businesses need to abide by to stay legally compliant. For example, e-commerce businesses have to comply with GDPR and PCI-DSS to secure their customers’ personal data, financial information, and payments online. Understanding the compliance guidelines and adhering to them is vital, but you should still have a legal strategy to deal with issues if they arise.
Following this legal checklist can keep your startup secure from litigation to a significant extent. While you cannot be 100% safe from lawsuits, having a preventive and protective plan gives you more confidence as a startup entrepreneur. The best way to get started is by getting legal guidance from an expert lawyer who has ample experience with startups. They can understand the challenges of new businesses and address the legal loopholes so that problems are addressed even before they come up.