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Start Up Law: Legal Strategies for Success

Understanding start up law is essential for long-term success. Delve into key legal considerations for entrepreneurs.

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Embarking on the journey of entrepreneurship requires more than just a great idea—it demands a solid legal foundation to navigate the complexities of business ownership. From selecting the optimal business structure to safeguarding intellectual property and drafting watertight contracts, understanding start up law is essential for long-term success. In this article, we’ll delve into key legal considerations vital for aspiring and established entrepreneurs alike, drawing insights from industry experts.

Meet the Experts

Kristen Herwitz

Kristen is a business attorney committed to helping BIPOC, LGBTQIA+, and women entrepreneurs protect their work and themselves as their business and impact grow. She built her law practice, Herwitz Law, on paying it forward 8 years ago, reinvesting at least 10% of profits in organizations supporting women and social justice, and she now offers a DIY contract template shop in addition to her flat rate, transparent pricing for strategic legal advisor services. Kristen is a coach in AOF’s free Coaching Hub and posts legal tips on her Instagram.

Kim Meckwood

Kim is the owner and inventor of Click & Carry, a unique bag handle/carrying apparatus. She hails from a background of medical device and pharmaceutical sales and decided to make a major change after a life altering experience of being diagnosed with breast cancer. The journey through cancer gave her the faith and determination to quit her stable job and bring her product to market. Kim was originally inspired to invent Click & Carry after a breakup with a boyfriend made her realize she no longer had help bringing in the groceries. Since then, she has been featured on Shark Tank, Good Morning America, and QVC to name just a few!

Start Up Law Strategies

Understanding Business Structure

Determining the appropriate business structure lays the groundwork for your venture’s legal framework. The choice between sole proprietorship, partnership, limited liability company (LLC), or corporation profoundly impacts liability, taxes, and operational flexibility. Consulting with both legal and financial advisors is indispensable to make an informed decision tailored to your unique circumstances.

Choose the Right Structure for Your Business

  • Assess the level of risk associated with your business operations, especially concerning potential injury to customers or clients.
  • Take into account the nature of your business, particularly if it involves customers in physical spaces or products that interact directly with customers’ bodies, like beauty or apparel products.
  • Consider regulatory requirements, especially for businesses offering services or advice in regulated fields such as health, mental health, or nutrition.
  • Evaluate the financial implications, including tax considerations and the costs associated with forming and maintaining different business entities.
  • Reflect on your personal risk tolerance as a business owner, recognizing that comfort levels may vary and impact the choice of legal structure.

Common Legal Structures

  • Sole Proprietorship:
    • Description: A business owned and operated by a single individual. It’s the simplest and most common form of business structure.
    • Best for: Small businesses with low risk and minimal regulatory requirements, such as freelancers, consultants, or sole practitioners.
  • Limited Liability Company (LLC):
    • Description: Combines the flexibility of a partnership with the limited liability protection of a corporation. Owners are called members.
    • Best for: Small to medium-sized businesses seeking liability protection without the formalities of a corporation, suitable for most industries.
  • C-Corporation (C-Corp):
    • Description: An independent legal entity owned by shareholders. Offers strong liability protection but involves more complex tax and regulatory requirements.
    • Best for: High-growth businesses planning to raise capital through venture capital or public offerings, and those aiming for international expansion.
  • S-Corporation (S-Corp):
    • Description: A special type of corporation that avoids double taxation by passing corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.
    • Best for: Small to medium-sized businesses looking for liability protection and tax advantages, typically with a limited number of shareholders and domestic operations.

Crafting Effective Contracts

Contracts serve as the backbone of business transactions, providing clarity on rights, responsibilities, and expectations. Understand the essential elements of a contract and common mistakes to avoid is imperative when reviewing your start up law needs.

Benefit of Contracts

  • Clarity and Expectations: Well-drafted contracts establish clear expectations for all parties involved, minimizing misunderstandings and disputes. Everyone should know who is doing what, how much they are getting paid for it, when they are getting paid, and who is paying them.
  • Risk Mitigation: Contracts outline rights, obligations, and remedies, helping to mitigate risks and protect the interests of the business.
  • Legal Protection: Strong contracts provide legal recourse in case of breaches or disagreements, offering peace of mind and a basis for resolution.
  • Enhanced Professionalism: Professional contracts enhance the credibility of the business, instilling confidence in clients, partners, and stakeholders.
  • Defined IP: Contracts also define who owns, can use, can modify, and can sell the intellectual property created as part of the contract.

When to Seek Help

Consulting an Attorney:

  • Recommended for contracts with complex, unique, or high-stakes terms.
  • Attorneys provide expertise in drafting customized contracts tailored to specific business needs.
  • They ensure legal compliance, comprehensive protection, and offer insights into potential risks.
  • Attorneys can negotiate favorable terms on behalf of their clients.
  • Not always necessary for start up law needs.

Using a Contract Template Shop

  • Suitable for routine or standardized agreements with straightforward terms.
  • Offers pre-drafted templates for common contracts, such as employment agreements or non-disclosure agreements.
  • Provides a cost-effective and efficient solution for businesses.
  • Templates should be carefully reviewed and adapted to ensure they meet individual business requirements.

Protecting Intellectual Property (IP)

Intellectual property protections offer numerous business benefits that extend far beyond safeguarding ideas and innovations. One significant advantage is the boost in credibility it provides when interacting with retailers or seeking investment opportunities. For entrepreneurs aiming to pitch their products or attract investors, having intellectual property protections in place demonstrates a serious commitment to their product or invention. It signals to stakeholders that the business takes its innovations seriously, instilling confidence in the potential for commercial success. Additionally, established intellectual property rights can serve as valuable assets, enhancing the overall value proposition of the business and potentially opening doors to strategic partnerships and licensing opportunities.

There are many different types of IP protections in the US, including:

Copyright:

  • Description: Protects original works of authorship, such as literary, artistic, or musical creations, from being copied or reproduced without permission.
  • Best for: Businesses creating original content, including writers, artists, musicians, and software developers.
  • Cost: Relatively low cost, automatically conferred upon creation, but enforcement costs can vary.
  • Difficulty to Apply: Low, as it typically involves minimal formalities and can be applied to a wide range of creative works.

Copyright Registration:

  • Description: Formal registration of copyright with the U.S. Copyright Office, providing additional legal benefits and evidentiary support in case of infringement disputes.
  • Best for: Businesses with valuable intellectual property assets or those planning to engage in litigation to protect their rights.
  • Cost: Moderate, with filing fees ranging from $45 to $65 per application as of 2022, plus legal fees if using an attorney.
  • Difficulty to Apply: Moderate, requiring completion of application forms and submission of required materials to the Copyright Office.

Trademark:

  • Description: Protects words, phrases, symbols, or designs that distinguish goods or services from those of others, preventing consumer confusion.
  • Best for: Businesses with distinctive brand names, logos, or slogans, particularly those operating in competitive markets.
  • Cost: Moderate to high, depending on factors such as the scope of protection sought and whether legal assistance is required. Fees typically range from a few hundred to several thousand dollars.
  • Difficulty to Apply: Moderate, involving thorough research, application preparation, and potential challenges during the registration process.

Patent:

  • Description: Grants exclusive rights to inventors for new, useful, and non-obvious inventions, preventing others from making, using, or selling the patented invention.
  • Best for: Businesses with innovative products, processes, or technologies that offer a competitive advantage in the market.
  • Cost: High, with fees for filing, examination, and maintenance, plus legal expenses. Costs can range from several thousand to tens of thousands of dollars, depending on the complexity of the invention and the scope of protection sought.
  • Difficulty to Apply: High, requiring detailed technical descriptions, claims drafting, and navigating a rigorous examination process by the patent office.

Trade Secrets:

  • Description: Protects confidential information, such as formulas, processes, or customer lists, that provides a competitive advantage and is not generally known or readily ascertainable by others.
  • Best for: Businesses with proprietary information critical to their success, particularly those in industries where innovation and secrecy are paramount.
  • Cost: Variable, depending on measures taken to maintain secrecy and protect against misappropriation. Costs may include implementing security measures, employee training, and legal fees for drafting non-disclosure agreements.
  • Difficulty to Apply: Moderate to high, as it requires establishing and maintaining appropriate procedures to safeguard trade secrets and enforce legal protections in case of misappropriation.

Business owners also must ensure they are respecting other people’s IP, including images. Be very careful with pulling images off of the internet, including from free stock media sites that may or may not actually have the rights to those images.

Navigating Legal Changes

As businesses evolve, so do their legal requirements. Entrepreneurs must remain vigilant about changing regulations and adapt their business entities accordingly.

  • Business structures have a significant impact on liability, taxes, and operational aspects. While sometimes challenging to do, it is possible to change your legal structure.
  • Factors such as personal risk tolerance and financial strategy must be considered when choosing a legal structure.
  • Seeking guidance from local attorneys and accountants facilitates a smooth transition during legal changes, since requirements vary by state.

Finding Support

You don’t have to go it alone! In addition to attorneys that specialize in small business law or start up law, there are many free or low-cost resources that can help you with legal considerations as you start and grow your business

  • Patent and Trademark Research Center (PTRC)
    • Free resource offering assistance with all aspects of patents.
    • At least 2 centers are available in every state.
  • Local Colleges and Law Schools
    • Collaborate with these institutions for free or low-cost assistance.
    • Law students and local SBDCs can provide valuable support.
  • Attorneys with Template Shops
    • Lawyers, like Kristen, who offer pre-drafted contract templates.
    • These templates can be a cost-effective solution for legal needs.
    • Offer convenience and affordability for routine agreements, but review and customization are advised for individual requirements.
  • Local SBDC

Conclusion: Start Up Law

In conclusion, navigating the intricate landscape of start-up law is essential for entrepreneurs embarking on their business journey. From selecting the appropriate business structure to safeguarding intellectual property and crafting watertight contracts, each legal consideration forms a crucial piece of the entrepreneurial puzzle. By diligently addressing these facets, entrepreneurs can mitigate risks, foster innovation, and lay a solid foundation for long-term success.

As you venture into the dynamic realm of entrepreneurship, remember that a proactive approach to legal matters is not just about compliance; it’s about strategic empowerment. By embracing legal considerations as integral components of your business strategy, you equip yourself with the tools needed to navigate challenges, seize opportunities, and propel your venture forward.

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