A Guide to Contemporary Legal Issues for Startups

by / ⠀Entrepreneurship Personal Finance / November 1, 2021

Once you have your business strategy, make sure your startup is legally secure. Are you taking the right legal steps to avoid trouble?

Begin to incorporate your company.

Think about these ideas when you begin your startup venture and, if you’re in need of legal assistance, remember that there are apps to assist you to find a lawyer in your area and at a lower cost. There are apps to provide business forms for free. Lawyers online can assist you.

Protect your legal rights.

It’s not advisable to release your ideas from the bag too quickly especially if you’re worried that competitors may poach. Your employees shouldn’t be able to either.

To ensure the protection of intellectual property assets. Such as trademarks, patents, and franchise secrets, make sure that employees and others concerned sign the Confidential Information Agreement and an Invention Assignment Agreement. This agreement stipulates that the company’s intellectual property remains the property of the company. It may not be transferred or sold.

To safeguard your invention, especially if you are a startup, you can apply for the protection of a Provisional Patent. You can make use of the “patent in pending” notice to stop other people from copying your idea while you work on your business. You can find websites to provide a no-cost Prompt Patent Application to complete to send your application to U.S. Patent and Trademark Office.

It is also possible to include a non-compete clause into an Employee Agreement that prevents employees from competing with the company or making solicitations to your customers or employees for a certain period of time after departing from the organization.

Establish a legal entity.

Next: Determine the best legal entity structure for your company. Five common legal structures are:

  • Sole Proprietorship
  • Partnership
  • Limited Partnership
  • Corporation
  • Limited Liability Company

Each type of business requires owners to utilize different types of tax documents, and each one has advantages and disadvantages.

Sole Proprietorship

An individual who owns a business is a Sole Proprietor, not registered as a restricted liability corporation or a corporation by the state. When you’re a sole-proprietor you own all the assets. But you also have all the liabilities and debt. You’re both the owner and the business under the law. In this kind of legal entity, you may make a profit or loss on your personal tax return.

Partnership

Two or more persons can own an unregistered partnership. A partnership isn’t recognized as a Limited Liability Company. The partners in a startup are accountable for their own taxes on their respective shares of earnings, and all partners are responsible for the debt and liability.

Partnerships are typically straightforward to set up and can result in minimal or no taxation. It’s not necessary to record anything, but writing things down never hurts.

There is an exception to this rule: Limited Partnership.

Each particular state establishes limited partnership rules. Limited partners are liable only for the amount they put into the business. With regard to loans, while general partners are personally responsible. This could help a business find investors as they’ll be able to limit their liability. However, it could pose a problem for general partners who are ultimately responsible for the majority of the burden.

Corporation

A corporation is a business entity that is owned by persons. They’re not responsible for the company’s debts. Corporations are responsible for the company’s debts. Corporate tax filing is separate from their owners, and owners do not pay tax on earnings they receive personally. Clients’ personal wealth is secure but owners could lose their investments.

Every state has its own business creation rules. You must establish your legal name with the state government. Then establish your corporate name. Startups can be corporations. The cost is often high.

You can get an article of incorporation worksheet online to assist you in gathering the necessary information to create an entity.

Corporations allow you to raise funds by selling stock after you have incorporated. Certificates of stock are evidence of the purchase of stock to stockholders.

Corporations are costly to establish and come under increased scrutiny by the government. They also pay higher taxes. Consult a business attorney prior to proceeding. If you’re in need of legal guidance, be aware that on-call attorneys can assist for a one-time fee.

Limited Liability Company

A limited liability company, also known as an LLC, has some of the same characteristics as a corporation and sole proprietorship or partnership startup. It carries limited liability for its members. Corporate entity taxation decisions don’t matter to owners. The earnings are distributed to the owners. The owners report gains as well as losses in their own tax returns.

This kind of organization is put together according to state laws.  State laws differ from state to state with regards to LLCs. In accordance with the Internal Revenue Service, the LLC’s members are personally responsible for the company’s obligations.

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Editor in Chief of Under30CEO. I have a passion for helping educate the next generation of leaders.

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