I have worked with many entrepreneurs who feared navigating the legal system. One common belief shared among early-stage startups is that the more they spend on legal advice, the less money they will have to run, grow or market their company. While this is true, ignoring legal issues from the onset can lead to costly consequences down the road.
These six fundamentals will ensure your new business venture is on legal safe ground from the start, and help take care of legal formalities efficiently:
1. Secure a trusted legal advisor.
The best way to find and engage a business lawyer like this is to find one before it is necessary. Ask other entrepreneurs -- a referral is a great way to narrow down your choices. A good attorney will understand the need to foster a relationship with a business owner and not charge you for every call. Use the lawyer to determine if a problem is big enough to warrant spending hard-earned cash and when the time comes to start paying, be sure to set a budget and stick to it. Ask what you can do to help keep costs low, and demand a flat fee for common work.
Also, look into a legal plan that has a business focus. Legal triage over the phone for a flat monthly fee can save thousands. Many plans offer a year of this service that will cost you less than an hour with an attorney.
2. Think through the legal aspects early.
I generally advise new entrepreneurs to look at least six months ahead and keep their legal advisor informed. This can ensure timely response to critical legal needs. Make sure to do your research. This includes visiting the websites of the city, county and state to see what types of businesses require a license and what you need to do to get one. Don't let your attorney spend hours doing a task that you can do. Remember that if you need quality and speed, you have to pay for it.
3. Put it in writing.
The biggest mistake people make is thinking a verbal agreement is enough. Not having a contract or a poorly-drafted agreement is the root of all evil in business disputes and is almost always costly down the line. Whether you are drafting business points with a potential developer or making an offer to an employee applicant, make sure important items are written and signed by all parties. If you are starting with co-founders, get written confirmation about titles, roles, equity, vesting, capital contribution and how you are going to manage the business. A little good writing goes a long way in keeping the relationship on track.
4. Protect your brand's value.
Trademarks or service marks are just the start. Once you register your brand, slogan or catch phrase, police it. A brand is only valuable if you protect it. To do so, engage a trademark monitoring service for less than $20 a month and they will let you know if someone is encroaching on your brand. When you see someone diluting or using it, determine if this is a fight you can win. Make sure your legal advisor has a decent understanding of trademarks or intellectual property protection. The same goes for patents, trade secrets and the other "secret sauce" elements that make your business unique and profitable.
5. Determine employee status.
One of the least understood legal concepts is hiring an employee versus engaging a contractor. Improperly classifying an employee as a contractor can get you into hot legal water and prompt a visit from the IRS. All too often business owners want to classify someone as a contractor, but it is clear that they should be an employee. When in doubt, clarify the relationship with a legal advisor or bite the bullet and make the hire.
6. Leave emotion at the door.
This advice applies tenfold to lawsuits and threats your business might receive. Even if you know you are right, sometimes fighting and winning a legal battle costs more than avoiding it. If you can't separate your emotions, turn to your advisor, who should know how to calm you down.
These are of course a subset of larger legal issues to keep in mind, but if you start here you can spend less time focused on legal problems, and more time growing your company into a successful enterprise.
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