LEGAL CHECKLIST FOR EARLY-STAGE STARTUPS

Legal checklist for early-stage startups

In the early stages of startups many entrepreneurs are so focused on their product or raising capital, that they bypass the legal aspects of starting and running a business. While the legal portion of starting a business may seem tedious and daunting for new startups, the legal steps are imperative to the success and profitability of the business. If not addressed early on, the following legal checklist items, as reflected in this Forbes article, will inevitability be very painful and costly later down the line.

1. Partnership or Founders Agreement

This will likely be the very first and most important legal document for startups if there are multiple founders. Here are some of the legal questions the Partnership Agreement will address to ensure all founders are on the same page regarding the business and their positions to prevent costly litigation down the line:​

• How will the equity be split among the founders?
• Is each founder’s percentage ownership in the company subject to vesting based on continued participation in the business?
• What are the roles and responsibilities of the founders?
• If one founder leaves, does the company or the remaining founders have the right to buy back the departing founder’s shares? If so, at what price?
• How will key decisions and day-to-day decisions of the business be made? (by majority vote, unanimous vote, or are certain decisions solely in the hands of the CEO?)
• What assets or cash does each founder contribute or invest into the business?
• How will a sale of the business be decided?
• What happens if one founder isn’t living up to expectations under the founder agreement?

​2. Incorporation

Deciding whether you should form your startup as an LLC or a C Corp is a very important legal decision that comes with serious financial and other implications. For instance, most venture capitalist require startups to be formed as c-corps. You can see more about organization structure and documents here.

C Corporations are governed by state law and most are incorporated in Delaware. This type of business entity is favorable for investors because the structure supports investment protection through shareholder agreements, board of directors, and stock options. 

Limited liability companies are also governed by state law and have more favorable tax implications. Unlike, C corporations, LLCs offer flow-through taxation and protection to its members but its structure does not support investments.

3. Confidentiality Agreement or Non-Disclosure Agreement

Before disclosing your startup's product or business idea to other parties you should make sure they sign a confidentiality agreement also known as a non-disclosure agreement. By signing this agreement the party receiving the information agrees not to further disclose the protected product or idea to another party. In its early stages, you want to make sure you implement the necessary protocols to keep your information secret.

4. Intellectual Property Assignment Agreement

When individuals or companies are hired to create a product for your startup you want to make sure they assign all trademark or inventor rights to the product and designs to you. This will ensure your startup owns the rights to the  intellectual property and has the exclusive right to its use.

5. Intellectual Property Protections

In the early stages it's important to secure intellectual property rights to your startup's product and brand. These rights prevent others from taking your idea or product and brand and copying it. Securing IP rights also allow you to monetize through licensing later down the line once your product enters commerce. For information on federal trademark registration you can refer to our services here.

​If your startup has not crossed out items on this list, you can contact us here to schedule a consultation. We are here to serve.


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