Legal Minute: How To False-Start Your Startup
Chances are you have an idea that you want to turn into a business. The plan to take that idea to the market is commonly known as a startup in today’s entrepreneurial world. But how to create a successful startup is the big question, right? Well, here are a few things you should avoid doing if you want your idea to become a reality:
01 | AMBIGUOUS AGREEMENTS BETWEEN YOU AND YOUR COFOUNDERS
We know, you’ve been friends for years and you’ve worked together at various companies. What could go wrong!? A lot of things can go wrong, and if your startup becomes wildly successful, things will go wrong. It is crucial that you work with an experienced attorney to draft the appropriate agreements to document the rights, equity, and relationships between you and your cofounders.
02 | INVESTING IS NOT THE WILD WEST
What do we mean by the Wild West? We mean that you cannot advertise and raise investment funding for your startup with a simple handshake and smile. Sure, your smile can brighten the room, but it won’t protect you from a lawsuit if your investor doesn’t see the return on investment he or she expected to see. Further, the Wall Street debacle and housing market crash in our recent history spawned an incredibly strict and complex legal framework that only qualified professionals can understand and navigate. Up front investment in getting it right is well worth the protection as your business grows, and certainly worth the protection if your business fails.
03 | PICKING (AND GETTING ATTACHED TO) A BUSINESS NAME THAT IS ALREADY TAKEN
We live in an intellectual property-driven world because of our vast exposure to media. As a result, the pool of available business names and product names is shrinking rapidly. This is especially so if your business and/or product name includes common words or phrases. How do you prevent your startup from having the same name as another and therefore exposing you to litigation? You search the United States Patent and Trademark Database for similar names already registered and search your state and local databases for similar business names. It is not fun to be a year or two into your startup and get a letter in the mail that you must cease using your name because someone else already has it.
04 | IGNORING INTELLECTUAL PROPERTY REGISTRATIONS
Not only is your startup name intellectual property that should be protected, so is any of your branding that is created for your business. While you and your business have automatic rights in any original media created by you and your employees, registering your intellectual property with the appropriate government office provides more significant protection. In other words, if you create a sweet logo, have a sweet business name, create amazing media, or simply create anything for your business that you don’t want someone to steal, register and protect it. If you don’t, it could be no time before you start seeing bootleg versions around town.
05 | DO-IT-YOURSELF
Don’t. Just don’t. And this also extends to the quick-fix websites that claim to form your LLC or Corporation for the low, low price of $299. Trust us on this one—business formation is not one-size-fits-all. Without an experienced attorney to guide you through deciding on the appropriate business type, the proper equity distributions, the proper paperwork for formation, and the overall way to minimize risk for your business, you could find yourself paying more penalties and fines than your business is earning in profit (not to mention the additional costs to have it cleaned up).
06 | TAXES
Yeah, we cringe when we hear this word too. That doesn’t mean you should sweep your concerns under the rug and say “I’ll deal with it later”. Just like you need experienced attorneys to minimize your risk, you need experienced accountants and CPAs to maximize your write-offs and tax credits. Again, don’t find yourself paying fines and penalties simply because you were too frightened to have a conversation with an accountant. They, like attorneys (and surprisingly most insurance companies) are actually there to help.
07 | WEBSITE LEGALITIES
Alright, you’ve got everything from the business to the intellectual property buttoned up by now right? Now you’re working with your favorite designer and the webpage is looking good. Time to make that beautiful creation live isn’t it? Not so fast. Not only should you vet your website for any possible infringement issues first, you should also have comprehensive Privacy Policies (“PPs”) and Terms & Conditions (“T&Cs”) applicable to the use of your website. PPs and T&Cs are basically agreements that any user of your website agrees to by using your website. In other words, these prevent (or seek to prevent) you from being sued because someone used your slick new website.
There’s no doubt that this article comes across as a little doom and gloom. This was not our intention, but it goes to show that there is a list of important considerations when starting a new business. Instead, this article intends to inform and clarify before you step on any landmines. It ultimately boils down to doing your homework and making the initial investment that will set you and your business up for long-term success.
Disclaimer: The information in this article is presented for informational purposes only, and should not be taken as legal advice. Before acting on any information presented in this article, you should consult an attorney regarding the facts of your specific situation. We would love to hear from you, so please feel free to contact Wilkinson Mazzeo for a consultation.
FROM THE EDITOR
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