A “startup” refers to a business that has recently begun operations. The business is essentially in the first phase at a smaller scale until there is enough revenue to continue moving forward. The individual or individuals starting the business will need an idea for a product or service and money to get started.
How are Startups Financed?
Compared to a traditional small business that is more structured, startups will pose different challenges. For example, many startups do not rely directly on traditional business financing (such as small company loans). While loans can fund a startup, financial backing for the startup is often from individual funds, investors, or even crowdfunding.
Investors are the most used type of funding. Startup entrepreneurs will actively seek capital, or starting money, from “angel investors” or venture capital firms. These investors balance the startup’s costs, potential return on investment, and other factors when deciding to invest.
While investors are the most commonly used type of funding, crowdfunding is also gaining popularity. This is an option that provides individuals who want to see the business succeed with a platform to donate money to help fund the startup. A crowdfunding link can be shared online to members of the public to learn about the business and donate money, if desired.
What are Important Things to Consider when Creating a Startup Business?
Startups can be risky, time-consuming, and confusing to navigate. As such, before founding a startup you should consider implementing the following practices:
- Create a comprehensive business plan, including an exit strategy if you end up needing to close the business;
- Perform research in your target market to gauge the startup’s success rate;
- Determine how you will secure funding;
- Determine which business structure (such as an LLC or an S-corporation) meets your needs;
- Assess your needs for business licenses and obtain all required licenses;
- Consult with a business lawyer about the different state and federal regulations that impact startup businesses; and
- Make sure you understand the tax liabilities involved in your startup.
Having a clear and concise business plan is arguably the most important thing in the above checklist. Starting your own business can be an exciting endeavor, but it can have many potential legal pitfalls. As such, an effective business plan can help to protect your startup from certain legal problems.
To be effective, your startup’s business plan should consider and discuss the following items:
- Capitalization and where the investment/profit money is coming from;
- Labor and employment components, such as your hiring and pay structure;
- Intellectual property, which refers to protecting your work and not stealing the works of others. This should also assess any risks related to intellectual property;
- The structure or type of company your business entity will operate under;
- Summary of market research and projected success rate;
- Confidentiality of work product and how to keep proprietary secrets secure;
- Summary of contingency plans and business termination strategy;
- Any legal obstacles to setting up your startup and to business operations; and
- Any other potential risks or obstacles to your startup’s success.
What are Some Legal Issues that may Come Up when Forming and Operating a Startup?
As with starting any business, you may face some legal issues. It is best to be aware of any potential legal obstacles so you can deal with them head on and plan accordingly. Some things to consider are:
- Government requirements: You do not want to violate any laws while opening a startup and must make sure that you are doing business in a way that does not create unnecessary tax liability;
- Contract review: Contracts can be complex when dealing with vendors, suppliers, and other customers. Contract review review and negotiation of contract terms can also bring up some legal issues;
- Hiring employees: Hiring process, wage calculation, drafting employment agreements, and employee termination all need to be legal and above board;
- Obtaining patents and trademarks: You may need to conduct trademark searches, file patents, and ensure that you are not violating any intellectual property laws if you are marketing a specific product; and
- Establishing a business entity: Establishing a business entity, like an LLC or corporation, will help to protect you personally from business liabilities. This also has a set of legal rules that you must follow.
As such, hiring an experienced business lawyer can help you prepare for these types of situations and alleviate any concerns that you may have.
Do I Need a Lawyer for Setting Up My Startup Business?
Founding and building a startup can be a lot of work and complicated at the same time. Contact a local business lawyer who has experience dealing with startups. A lawyer can help you build a thriving business that complies with state and federal laws. An experienced business lawyer can also ensure that your interests are protected through well-drafted contracts and intellectual property filings.
Since it can be difficult to understand and anticipate a startup’s legal issues, a lawyer can ensure that you properly and legally:
- Structure your company or enterprise;
- Meet licensing and regulatory expectations;
- Comply with labor and employment rules;
- Protect your ideas through patents, trademarks, and copyrights;
- Negotiate and enforce your contracts; and
- Comply with any applicable SEC regulations or federal and state laws.
Contact a local business lawyer today to help you get started.