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Legal Issues When Starting a Company

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How Difficult Is it to Start a Company?

Starting a company is not necessarily difficult, but it does require some understanding of basic business law. For instance, most people know what a corporation is, but many people don’t know that there are different types of corporations, such as limited liability corporations. Choosing the right form for a company is probably one of the major steps when starting a company.

Another thing to consider is that it is not always necessary to start a business “from scratch.” For some, starting a company can involve an expansion of an already functioning company. Others opt to form a “startup company”, which is an organization that is seeking to create or enter new markets.

What Are Common Legal Issues When Starting a Company?

There are four common legal issues that you might face when starting a company:

1) Filing Requirements: One of the main legal issues to consider when starting a company is making sure that all the documents are properly prepared. These can include:

  • Articles of incorporation
  • Bylaws
  • Proof of filing with the state
  • Other forms regarding tax status

While not necessary a direct “legal issue” per se, errors in a filing document can cause major problems in the long run.

2) Intellectual Property: Another legal issue is that of protected information, i.e., copyrights and trademarks. Especially if you’re starting a brand new company, it takes much research to make sure that you aren’t naming your organization or your products in a way that might lead to an infringement case. This type of search often requires the assistance of a lawyer.

3) Employee Screening and Conflicts of Interest: Conflicts of interest can also present legal issues when starting a company. You should thoroughly review any candidate for employment to ensure that they won’t have competing interests with your company. This is especially true for persons who will be serving on a board of directors.

4) Financial Structure and Contracts: There may be many other related issues when starting a company, such as tax issues, debt agreements, business contract issues, and others. The main thing is to have a comprehensive plan for launching the business (one that covers several years into the future).

How Can Legal Issues Be Avoided When Starting a Company?

One of the main protections against legal issues actually has to do with the company’s bylaws. These should state what should happen if legal issues should arise (such as when a lawsuit can or can’t be filed). If the bylaws and other company policies are written very poorly, the company is opening itself up to legal liabilities. However, if the policies are clear and comprehensive, there is less chance that a legal dispute will lead to actual liability.

If a legal dispute does arise, it may become necessary to file a lawsuit. This may often need to be filed against an individual person, or against a group of individuals, since the company might not officially be registered yet. Remedies might include a damages award or a court order requiring a return of property that was donated to the company. These all depend on the individual issue and conflict at hand.

Do I Need a Lawyer for Help with Starting a Company?

Whether starting a smaller or a relatively larger company, it’s generally standard procedure to hire a lawyer for assistance. Your attorney can help review your company’s documents and policies to ensure that you won’t run against unnecessary legal issues in the future. Also, your lawyer can represent you in court in the event that you do need to file a lawsuit regarding any business matters.

Photo of page author Matthew Izzi

, LegalMatch Legal Writer and Attorney at Law

Last Modified: 03-11-2014 03:36 PM PDT

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