5 Legal Risks Commonly Faced by Startups

Watching a personal hustle or project that you have invested so much time and effort into, grow into an organization that requires the incorporation of a structure is usually an exciting feeling. Ask anyone who founded or co-founded a company, and you will get educated on the nostalgic feeling associated with the realization that the small startup is finally becoming a full-fledged company. In this age of technological innovation, the majority of the startups springing up have a focus on technical solutions.

Due to the legal and managerial inexperience of the average curator of such a technological solution startup, many of them find themselves in a web of litigations that they could avoid. Legislations are daily springing up in the local and global business ecosystem, regarding the rules of engagement for companies, employees, and their customers. Just any kind of legal counsel will not suffice for businesses; instead, you shall require a legal team that is aware of trends in your industry.

By assessing the trend of litigations that have involved startups in recent years, we shall be highlighting some legal noose that founders have to tie before diving to sign any agreement of incorporation.

1.Choosing an appropriate business structure; to avoid tax burdens, liabilities, and other challenges.

In haste to get the balls rolling, founders of startups sometimes opt for obtaining local licenses that enable them to function as either a sole proprietorship or general partnership. However, these kinds of structures leave the founder or partners with truckloads of liabilities to address, not to mention the risk of direct exposure to creditors. LLCs, Corporations, and Limited partnerships are better alternatives. Though the later business structures might be more expensive to put in place, they will, however, save the founders and investors a lot of headaches in the future.

2.Setting the records straight; avoiding risks of litigation between co-founders

Before a startup becomes structurally functional, the founding contributors need to agree on the following – terms of engagement, individual responsibilities, terms of disengagement, distribution of liabilities, losses, and profits. At the inception of the business, before benefits start flooding, it is always best to have the co-founders agree on the mentioned issues and have the terms appropriately documented.

3.Designing a good employee contract

In climes like the US, where labor laws are stringent, it might be foolhardy to employ the services of people without having a draft of the contract. Such contracts will include an emphasis on things like the conditions of employment, anticipated benefits, a handbook stating organizational code of conduct might equally be necessary. It is also essential to apply for insurance, to foot legal bills, should a former employee decide to sue.

4.Securing business intellectual property

Before any startup goes public, it is always essential to conduct thorough research on the legal validity of your intellectual property. Assigning a pseudonym or mark to your business idea, which has been registered by an already existing parastatal is an open letter to litigation.

5.Seeking the right legal counsel

A startup cannot afford to employ the services of just any lawyer, perhaps by personal affiliation. For example, when it comes to legal structures for Corporations, talking about Delaware Business Incorporators is a step in the right direction.

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