What Are the Top Legal Mistakes Start-Ups Make? (And How to Avoid Them)
Getting a start-up off the ground can be an arduous task. From securing financing to hiring employees, there are many traps for the unwary. This post summarizes some of top legal mistakes start-ups make and offers advice for how to avoid them.
Failing to execute a written agreement among founders When starting a new venture, it is imperative to plan for both the best and the worst. A founding shareholders or partnership agreement is the best way to avoid disagreements down the road. Some of the key issues to decide and reduce to writing include: the percentage of ownership assigned to each founder, the roles, titles and responsibilities of all founders, any special plans for funding or uses of proceeds or apportioning of profits, the procedures for making day-to-day business decisions, and the methods required to resolve disagreements.
Selecting the wrong business entity There are a number of legal structures available to entrepreneurs, all of which have distinct advantages and disadvantages. While a partnership may involve less paperwork, it does not shield the owners from personal liability for the debts and obligations of the business. While it may be more costly and complex, a limited liability corporation (LLC) or corporation is generally a safer choice.
Leaving your Intellectual property unprotected When it comes to protecting valuable intellectual property, being proactive pays off. Even at its earliest stages, nearly every start-up has intangible assets worthy of protection, such as the company name, logo, and key products. If you fail to obtain the proper trademarks, patents, and copyrights, you may have no legal recourse should a competitor try to use them. In addition, without the proper non-disclosure agreements in place, your business partners or employees could walk out the door with your million-dollar idea. For particularly valuable intellectual property, it may be advisable to establish a separate entity for the ownership of the “crown jewels” for protecting them against future claims.
Mismanaging employees Hiring employees can be an exciting step for a new company. However, it is imperative that you understand your legal obligations as an employer. From tax filings to hiring agreements, there is a lot of paperwork involved. Also, while hiring independent contractors may seem like a great way to avoid many state and federal employment laws, misclassification can lead to significant penalties. So, it’s important to understand the rules.
Thinking you can do it on your own In order to cut costs, many entrepreneurs try to take everything on themselves. This is a bad idea for many reasons. First, you likely already have too much on your plate. Second, when it comes to accounting and legal issues, mistakes can be disastrous, costing your start-up both time and money in the long run. The best course of action is to hire.
Crypto Enforcement: A Former Prosecutor’s Warning to Criminals and the Public
Cryptocurrency intimidates most people. The reason is straightforward. People fear what they do not understand. When confusion sets in, the common reaction is either to ignore the subject entirely or to mistrust it. For years, that is exactly how most of the public and even many in law enforcement treated cryptocurrency. However, such apprehension changed […]
Understanding Chattel Paper: A Key Component in Secured Transactions
Using chattel paper to obtain a security interest in personal property is a powerful tool. It can ensure lenders have a legal claim on collateral ranging from inventory to intellectual property. To reduce risk and protect your legal rights, businesses and lenders should understand the legal framework. This framework governs the creation, sale, and enforcement […]
For years, digital assets operated in a legal gray area, a frontier where innovation outpaced the reach of regulators and law enforcement. In this early “Wild West” phase of finance, crypto startups thrived under minimal oversight. That era, however, is coming to an end. The importance of crypto compliance has become paramount as cryptocurrency has […]
Supreme Court and Title VII: Implications for Reverse Discrimination
Earlier this month, the U.S. Supreme Court issued a decision in Ames v. Ohio Department of Youth Services vitiating the so-called “background circumstances” test required by half of federal circuit courts.1 The background circumstances test required majority group plaintiffs pleading discrimination under Title VII of the Civil Rights Act to meet a heightened pleading standard […]
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Short Form Merger: Streamlining the Process for Businesses
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
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