Do you have a great idea for a start-up? While enthusiasm is a great quality for entrepreneurs to have, it must be tempered with due diligence or you could find yourself in a world of trouble.
Before you jump the gun and get yourself in over your head in some murky legal waters, slow down and consider some of the ways you could trip yourself up in the start-up world.
Picking the wrong co-founder
This person, for all intents and purposes, will be as tied to you as your spouse. Choosing the wrong person or selecting someone without fully getting to know him or her can doom even the best companies to mediocrity, or worse.
Failing to have signed founders’ agreements
If your founders’ agreement is poorly executed (or nonexistent), it creates unnecessary complications in the event that a founder decides to jump ship or the founders disagree. Areas to be addressed include:
- Veto rights on company sales
- Voting rights
- Borrowing
- Lock-up provisions
Lacking employee noncompete agreements
Any work done for your start-up should be owned by your company, and the company’s ownership of the work product should be clearly spelled out in writing. Another aspect to address is noncompete agreements for workers. Don’t let your trade secrets walk out the door and benefit your competitors.
Running afoul of employment laws
In the world of cash-strapped start-ups, cutting legal corners or making shady deals might seem like a good way to save a few bucks. Don’t kid yourself. Disentangling yourself from a lawsuit for violating employment laws is going to cost far more than following the law ever would. Don’t classify employees as independent contractors or you could be embroiled in messy litigation.
Seek legal counsel when needed
If your head is beginning to whirl with all this discussion of legal pitfalls, take a deep breath and relax. It’s OK not to know all of these things as long as you have legal counsel to turn to here in Cincinnati who can get you back on track.
Source: Traklight, “Top 10 Legal Issues For Startups,” Michael Witham, accessed April 06, 2018