5 Legal Considerations When Forming a Start-Up

5 Legal Considerations When Forming a Start-Up

Building a startup business is exciting. You want your business to grow properly. It is important to address legal considerations for your industry. You should consult with a lawyer and familiarize yourself with pertinent laws. Here are five legal considerations to make when forming a startup.

1. Choose the Right Business Structure

Choosing the right business structure is one of the most important decisions startup owners will make. Your choice will determine how much you pay in taxes. It will determine who has control over the business and who is legally liable.

Make this decision after talking to a lawyer. You should find out which option is most suitable for your industry and circumstances.

A sole proprietorship, C Corporation, partnership, and S corporation are the most popular legal structures for startups. You may need different licenses or permits to operate. At a bare minimum, you will need a business license and will need to register for taxes.

2. Put Things in Writing

Verbal agreements are not enough. You must put things in writing for them to be legally binding. Your written agreements should clarify the rights and obligations of each individual involved in the startup.

Stakeholder agreements, partnership agreements, and employment agreements are some documents you will want your lawyer to create. A buy-sell agreement is essential if you have partners. Create contracts for vendors, especially if you have trade secrets to protect.

3. Protect Intellectual Property

Startups typically are introducing something new to the marketplace. Patents, trademarks, and copyrights will protect your intellectual property. Your business gains the power of exclusivity when it files a patent or trademark. This lets you set yourself apart from your competition.

You get exclusive rights to books, musical recordings, photographs, and other original content with copyright. Although these works are protected upon creation, registering them with the copyright office gives you legal backing when you sue.

4. Understand Employment Laws

As a business owner, you must understand federal, state, and local employment laws. Discrimination based on gender, national origin, religion, color, or race is prohibited by law. The Age Discrimination in Employment Act prohibits discrimination against people who are over 40 years of age. The Americans with Disabilities Act makes it illegal to discriminate against someone because of disabilities.

Other employment laws that you must be familiar with include wage discrimination, minimum wage, and paying overtime.

5. Know Liability Laws

If your business has a physical location, you need to know your liability responsibilities toward vendors, employees, and customers. You would do well to learn how to invest in the right type of insurance.

You may form your startup as a Limited Liability Corporation because you want to limit your personal liability. However, if you don’t have an insurance policy that backs up your LLC, your liability may not have the limitations you had hoped for.

If a legal discrepancy with a customer or vendor comes up, you may be liable for damages and losses incurred by your business. An LLC shifts liability. Business insurance covers liability. This allows you to operate your startup with peace of mind. You will know that if the unforeseen happens, there is an insurance company covering your back.

The type of insurance coverage you will need will vary based on what your business does. If you have inventory, equipment, a storefront, employees, or provide consultations or recommendations, you will need different forms of insurance.

The reason insurance is considered an investment is because you are paying money for something that will produce future dividends. For example, general liability insurance covers broad medical and legal issues. It protects from the repercussions from damages caused by your business.

Conversely, errors and omissions insurance cover legal fees if a client sues you because they lost money after taking your advice. If your startup offers consultations or advice, then investing in errors and omissions insurance is vital for success.

Conclusion

You are investing time and money in your business. Failing to familiarize yourself with pertinent laws can cost you a lot of money. It is worth it to invest in getting qualified legal advice as you create your startup. The decisions you make at the beginning will impact the growth and profitability of your business.

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