5 Common Legal Issues for Start-Ups

legal issues

Many people think of starting a business is one of the ultimate goals in life. After all, having your own business allows you to manage your own time and work at your own pace.

And now, as technology improves, more untapped markets are discovered and more people are also interested in starting their own start-up company. If you are one of those people thinking of starting your company, you should continue reading until the end.

A great business idea or proposal is not the only thing that makes a business successful. The success of your company may also depend on how legally prepared you are before you even start your company. That means you should also take your time to prepare your paper works and contracts.

Below is a list of common legal issues start-up companies encounter:

1. Business name and trademark issue

When you come up with an idea for a start-up company or a business, you usually have to think of a name for it that makes it stand out from the rest. It can come in the form of a logo, a phrase, a symbol, or a combination of any of the three. After that, the first thing that you should do is go to the secretary of state’ office and make sure that you have a unique business name. Once you have confirmed that your business name is unique, you can start the process of registering your business name.

However, registering your business name in your state only protects your business name in that state where you initially registered. It is not protected in other states. That is why, if you plan to expand your business covering other states, then you should also apply for a trademark in USPTO or US Patent and Trademark Office. This way, your business name is protected in all states.

There are many other things that you can file for a trademark other than names, logos, and whatnot. Researching trademark rules and policies may give you more ideas on other things that you should apply a patent or trademark for.

2. Business legal structure

There are many types of business structures, and they offer different benefits and difficulties. Choosing the right business structure is important because it will help protect you financially and attract investors that are willing to help you raise capital for your business. The most common types of business structures are:
Sole Proprietorship – This is the simplest type of all. The business is one with the owner or proprietor and the income and tax not separated from the business. Therefore, if your business is suffering, then your income tax may be offset by it, too. This is because your business profits and personal income are one. One of the setbacks for this type of structure is the difficulty in raising capital for the business. The sole proprietors often have to rely on their savings or personal loans to raise capital.
Partnership – This type of business structure is ideal if you have one or more partner for the business. It also has 2 kinds: general partnerships and limited partnerships. In general partnerships, all entities in the business share the burden of the responsibility of managing the business as well as other obligations like debts. In limited partnerships, there are general partners, who manage and own the business, and investors who invest but have no responsibilities and liabilities like the general partners.
Corporation – This type of business structure is complicated and expensive. Generally, a corporation is a separate entity from the owners. So the liability of the corporation is not a liability of the owner. This way, the assets of the owner is protected. However, a corporation also has to comply with more strict regulation and tax requirements.
S Corporation – This type of business structure is more appropriate for small business owners. Like a corporation, owners can protect their assets. Their losses and income are also included in their tax returns and only has to pay one level of federal tax like in sole proprietorship. Shareholders also share the income and losses in tax returns making it more attractive for investments. However, like a corporation, they are also strictly regulated.

3. Employment Contracts

Starting your business usually involves hiring one or more employees to help you with your daily tasks. Before you even hire one or more, you must first have an employment contract that spells out the employees’ and employer’s responsibilities, as well as the benefits that you can provide for the employee.

Preparing a handbook that spells out the policies of the company will also help the employee know what she or he has to do in certain circumstances and clearly spell out the company’s policy regarding the said circumstances. Preparing NDAs or non-disclosure agreements should also be done if applicable.

4. Contracts with third-party companies

Spelling out the responsibilities of a third party company that you will be doing business with, like suppliers, contractors, and others, is very important. They are probably going to be a factor in your growth as a company, so if they do not or cannot do their job properly or promptly, your relationship with your clients will also be affected. Thus, it is essential to sort out the details, like payment terms and others, in writing. Signing a contract with them will also show their seriousness in doing business with you.

5. Protecting intellectual property or IP

An intellectual property is anything that was created by the human intellect. It can range from simple and useful inventions to music and art. Businesses and business owners must protect their intellectual property so that other entities cannot use it and earn from it without their permission.

For businesses, they can protect their IPs by applying for patent, trademark, copyrights and trade secrets depending on which intellectual property they are trying to protect. Enforcing NDAs can also ensure that employees or third-party companies do not disclose the protected intellectual properties to the competition.

In cases, where employees are the ones who do the creative work, it must also be clearly spelled out in the employment contract who owns the resulting intellectual property – the employee or the company.

Final Thoughts

For someone who only wants to start a start-up company and do what you love to do, it can be overwhelming to handle this amount of paperwork. Apart from that, you should also cover yourself from legal responsibilities. Though you can find “boilerplate” contracts on the internet and simply copy and paste, it is still a better option to consult a lawyer to help you.

Hiring a lawyer can provide useful insights in making different contracts that you need for different purposes. These tailored contracts are made especially for the kind of business that you have. It will also be tailored to give you protection from legal responsibilities for unforeseen untoward accidents and give you the upper hand in negotiations. Boilerplate contracts cannot guarantee these benefits.

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