Top 10 Legal Tips for New Tech Startups

Top 10 Legal Tips for New Tech Startups

Article by: Chambliss Startup Group

With all the excitement of a new startup, there are often business and legal considerations that may get pushed to the backburner. Inventors may come up with great products and may develop great business plans to bring them to market. But are inventors protecting their rights in those products? Founders may have the vision for a great business. But have the founders properly formed the business, have they put in place the agreements to protect the business, and have they correctly handled arrangements with contractors and employees?

For the founders and innovators out there, we’ve come up with a list of some important legal tips:

  1. Choose the best structure for your business.
    There are big differences among an LLC, a C-Corp, an S-Corp, a sole proprietorship, and a partnership. Before you choose, get some help considering the pros and cons of each, taking into account your business type, your financial objectives, and your expectations for growth.
  2. Decide on the founders’ relationship to the startup and document it.
    What is everyone’s share? Have the founders assigned to the startup the relevant intellectual property they have developed for the startup? Is it clear who owns what and who is in charge? Are buyback provisions in place in case a founder leaves? Are there vesting or other arrangements to encourage a founder and other key personnel to stay?
  3. Protect your intellectual property!
    First, identify your intellectual property (IP). Then protect it. Your business has a name. Make sure someone else is not already using it. You’ll likely need a website, so buy your preferred domain name ASAP so no one else can take it. Protect your trademarks by registering them. Protect business plans and customer information with nondisclosure agreements. If you have an invention, seek advice about whether it is patentable. And, don’t forget about copyrights.
  4. Review your relationship with your workforce.
    Whether you have some friends helping out, are hiring contractors to do key jobs, or are hiring employees, you’ll need to document the startup’s relationship to these workers. If you hire employees, be sure you have procedures to comply with tax and withholding requirements.
  5. Pick your workplace.
    Maybe you have a garage to use to start the next great company. If you don’t have a garage, look for other subsidized or free space.  When you are ready to expand, be sure you don’t commit to more space than you really need and stay away from long-term leases. Remember to get insurance to cover your workplace and its contents.
  6. Develop – and use – basic agreements to protect the business.
    If you develop or use any confidential information, your contractors, your employees, and maybe your customers should all sign non-disclosure agreements (NDA’s). You may also need website terms of use and privacy policies. It’s smart to have an attorney help you decide what agreements you need and to help you draft them.
  7. Think ahead about raising capital.
    Whatever you do, don’t wait until you are desperate to raise money.   When you are ready to move beyond “friends and family” investments, get some help designing and implementing your capitalization strategy.
  8. Identify board members or strategic advisors.
    Your board and/or advisors will help build your company and develop its strategy along the way. Look for people who complement your strengths, not duplicate them. Carefully structure your board to be sure you maintain the relationship to your startup you desire.
  9. Get that EIN.
    EIN, employer identification number, is like your business’s Social Security number. You will need it to open a bank account and to handle employee tax matters, not to mention your business’ taxes.
  10. Get your business license.
    Getting a basic business license is simple, but don’t forget to check with the city and county in which you are operating.
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