legal Eagle

Straight-forward legal tips for Military and Veteran Business Owners

By Kelly Bagla, Esq.

5 Common Legal Issues For Entrepreneurs

Entrepreneurs face a multitude of legal issues as they create, launch, and build a new venture, and the failure to anticipate and understand these issues can often mean the demise of a new venture. Here are 5 most consequential issues founders face in starting a new business:

1. SETTING UP THE ENTITY

One of the first issues a founder must decide is how they want to structure their business, will it be a corporation, a limited liability company (LLC), a partnership, or a nonprofit. Each of these entity types has its own legal and business implications and can impact a founder’s legal and tax liability in a company.

At the very earliest stage, founders should be considering which entity type will give them the best protection and the best tax advantages. If founders do not consider these issues, or if they opt not to set up a legal entity or do not file the proper legal documents with the state, their company may default to an entity they did not intend, potentially putting them at a higher legal and financial risk.

2. FOUNDERS AGREEMENTS

It is important to create a founder’s agreement at the earliest stages of the business, and to put the agreement in writing. Often, a business idea is developed among friends, and they might not think it is necessary to establish a formal agreement until the business takes off, or maybe they find it awkward to discuss negative scenarios that could happen down the road. But it is crucial to discuss these important issues at the very outset of an endeavor, which allows for all founders to take responsibilities of what they bring to the table, what percentage of the company they will own, and to be on the same page from the beginning. It is always best to put the deal in writing, as time goes on, memories fade, and even hones people with good intentions may have different recollections of what was agreed upon.

3. PROTECTION INTELLECTUAL PROPERTY

As an intangible asset, intellectual property is often overlooked but can be extremely valuable for both large and small companies. Founders should make sure that they own the intellectual property that their business is based on and that the intellectual property is protected. The protection might be in the form of a patent, or patent rights, such as a license to use or sell a product. Additionally, it is important to startups to consider their brand and associated trademarks. Founders do not want to go down a road where they have invested thousands of dollars just to find out that someone else had rights to the intellectual property. It is more costly to later change the name, the branding, and miss financing opportunities because the founders did not do their due diligence on the intellectual property before investing hundreds and thousands of dollars.

4. RAISING CAPITAL

Unfortunately, many entrepreneurs fail to grasp the magnitude of the expenses they will incur in launching their business, because everything costs money, and usually more than expected. Although entrepreneurs can find different sources for capital and there is more than one pathway to success, entrepreneurs should carefully consider each round of capital and the investors and potential consequences when deciding how to finance a business. Whether they choose to take out a loan, use a convertible instrument, crowdsource, and/or secure a venture capital round of funding, founders should consider how each of these investments could impact the structure and course of their business.

5. EMPLOYMENT ISSUES

When it comes to hiring workers and building a team, a new venture can make a lot of costly mistakes if it does not pay close attention to the law. By understanding some of the rules surrounding worker classification

(employee vs. independent contractor), an entrepreneur is much better positioned to make good decisions and comply with important requirements. Additionally, an entrepreneur should be thoughtful about when and how they leave their employer to start a new venture. If not careful, they run the risk of violating a non-compete agreement, or worse, losing ownership of intellectual property.

For an entrepreneur, there are countless considerations when starting a new business, and legal issues are not always top of mind. But an entrepreneur who understands what these issues are and how they arise is much more likely to address these issues before they become major problems. Staying on top of these issues and knowing when to involve a lawyer can play a significant role in the ultimate success of the business.

Becoming a business owner, you control your own destiny, choose the people you work with, reap big rewards, challenge yourself, give back to the community, and you get to follow your passion. Knowing what you’re getting into is smart business because the responsibility of protecting your business falls on you.

For more information on how to legally start and grow your business please visit my website at www.BaglaLaw.com

Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state