Picking out office space. Ordering business cards. Getting your website up and running. Putting together just the right team of people. There’s certainly no shortage of things to do when you’re starting a new business. But sometimes, in the chaos of launching a startup, it’s easy to overlook important legal aspects of your new business venture — which can have serious ramifications down the road.
When starting a business, there are a few legal documents that you should put at the top of your “to do” list. Let’s take a closer look at the top five legal documents your startup needs now:
Incorporation papers: To protect yourself and your family during the startup process, it’s important that you incorporate your business, setting it up as its own legal entity. By doing so, you’re providing yourself with an additional layer of legal protection between any issues that may arise and your personal assets.
The business structure you select will have an impact on the way you are taxed, so it’s important you are aware of the tax ramifications before you make the decision. Savvy startups seek out the counsel of an experienced small business attorney or accountant to not only help them determine the most advantageous business structure, but also to help them file the appropriate paperwork to make the business official.
Freelance work contracts: Whether you need a logo designed for your company, or want someone to code your new mobile app, it may make sense for you to turn to a freelancer to accomplish the task. When hiring a freelancer, it’s important that you protect your business and your interests with a freelance work contract. Spelling out things like work scope, payment terms and nondisclosure/confidentiality terms in a contract — before you get started — will help ensure that everyone is on the same page and will allow you to answer questions and work out potential issues before billing begins.
Additionally, ensure that your freelance work contract is crystal clear when it comes to outlining your business’ ownership of the intellectual property (IP) the freelancer is creating for you. There’s nothing that makes an investor more leery than less-than-clear IP ownership, so being able to prove you own the IP outright will help quell any concerns.
Client contracts: Just like with freelance contracts, it’s important that you have contracts with your clients that define the terms of your relationship and outline your recourse options if the terms are violated. But what if your clients are old friends and you’d feel comfortable doing business with nothing more than a handshake? Even then, it’s still a good idea to get in the habit of insisting on a contract. Just because you’re friends with someone doesn’t mean they’re the ones responsible for cutting the checks; nor does it mean they will be at that business forever. And in the event that a client doesn’t pay you for the services you rendered, a contract gives you the option to take legal recourse to collect your money. In many situations, just being able to reference the contract and threaten to pursue legal action is enough to get clients to do the right thing.
Trademark registration certificate: Many startups spend thousands of dollars hiring specialists to help them create a brand — from naming products/services to developing a logo and selecting a tagline — but then foolishly insist on taking a DIY approach when it comes to protecting that brand via trademark. The reality is that performing a trademark search on your own leaves you unnecessarily vulnerable to challenges and infringement accusations in the future.
Instead, make the smart investment and hire a trademark attorney to help guide you through the process. A dedicated trademark attorney has real-world experience with the trademark application process and can help you avoid many common trademark process pitfalls. Think of the money you spend on a competent trademark attorney as an investment in the security and longevity of your brand.
Buy/sell agreement: If you’re starting the business with a partner, it’s important that you outline what will happen in the event the partnership changes. Create a buy/sell agreement as part of your larger operations agreement, and in it address questions like:
- What happens if one of the partners no longer wants to be involved in the business?
- What happens if one of the partners is no longer able to fulfill his or her obligations to the business, due to personal issues, legal issues, etc.?
- What happens if one of the partners dies?
It may seem unnecessary to draw up a legal agreement with the person you’ve been best friends with since eighth grade — but it must be done. Addressing these questions early in your startup life, rather than in the middle of a disagreement or a crisis situation, will give your business a better chance of navigating even the stickiest of situations.
Set Up Your Startup for Success
If you’re starting a new business, it’s important that you procure several legal documents early in the process. By incorporating your business, developing contracts for freelancers and clients, protecting your brand via trademark and including a buy/sell agreement in your operations plan, you’ll be addressing some of the top legal issues that startups often ignore— and you’ll be setting yourself up for success today and in the future.
Josh Gerben is the principal of the Gerben Law Firm, PLLC, a firm that helps small businesses with trademark law and services. If you are looking to register your trademark, check out the many resources available on gerbenlaw.com.