5 Legal Considerations When Starting A Business

Maybe you’re thinking about starting a business or a side hustle. Or maybe you’ve already started one and want to make sure that you’ve “done it right.” After an intense Google search or two, you’ve come to the conclusion that it is easier to just do nothing because there seems to be a lot of conflicting advice on the internet. There’s a reason for that. The legal advice given is tailored to specific types of businesses, the states they are in, and the goals of those businesses. However, here are five general legal considerations to think about as you embark on this adventure.

Do we make it Facebook official, or what?

A question I get a LOT when folks are starting a business is, “do I need to form an official company?” The “official company” could be a C-corporation in Delaware or it could be a local, Washington State limited liability company (LLC) or something in between. They ask this but what they mostly want is permission to keep things informal (and not define the relationship) until they’re sure that they have created something worth pursuing.

I understand that urge, but there are two big questions that I ask anyone sitting in my office asking me the question of whether or not to form an entity:

• “what is at risk?” Another way to put this is, “who gets hurt and how badly do they get hurt if something goes wrong?”
• “what are your goals?” Are you getting venture funding and scaling fast? Or do you want to build a local presence and bootstrap it? Or?

The answers to these questions can help you and your lawyer decide what entity is best for you, even if it’s NO entity.

A Gentle-person’s Agreement

Regardless of whether you officially register your business or not, if you have partners in the business, I would highly encourage and recommend that you lay out clear expectations and goals. This can be done in a Founder’s Agreement, a Shareholder’s Agreement, a Partnership Agreement, or an Operating Agreement. What it’s called can differ based on what your choice above was.

And don’t wait until your business begins to make a profit to begin discussing what each founder is worth! Confront the elephant in the room (i.e. money and position) and be clear on rights, decision-making authority and equity from the get-go. The agreement process itself can surface potential conflicts in advance, and confirm whether you and your co-founders are truly in alignment before big investments of time and money are made.

We Need Help!

So, you’re building your business. And you need help. So, you think about hiring that help or aligning yourself with some other company to help move your business forward. When you take that step, take the time to establish clear guidelines and expectations in writing. You can even hire an attorney to draft template documents for you.

Innovations, and Content, and Branding…Oh My!

Almost every business created these days is creating intellectual property. This can be videos, code, products, guides, media, or slogans. It’s really important to understand what you have and rank how important these creations are for your business. I tend to put things into one of three categories:

• Do they make the business money?
• Make your or your employees’ lives easier?
• Do they make your clients’ or customers’ experience better?

Once you have figured that out, it’s also important to know how that intellectual property is owned. Something like the Agreements discussed above should also address any contributions of intellectual property (IP) and how that IP is being transferred to the company.

Websites

If your business has a website, and most businesses do these days, then make sure that website is compliant with any federal rules. If you watch Silicon Valley, then you saw the whole storyline about Dinesh potentially getting in trouble with the FTC (Federal Trade Commission). Those fines rack up FAST. So, use third party services like Mailchimp to send out marketing emails (they will help you stay on the right track) and use a Terms of Service and Privacy Policy.

Lastly, no one expects you to be an expert on everything. That is why people hire service providers. I run a law firm and we hire a bookkeeper and accountant to do our books…because we’re not experts at that. Not all lawyers are scary and there are a lot of good resources out there for people. Starting a business is fun, overwhelming, exciting, and a lot of work. Do what you do best — which is build your idea — and ask for help when and where you can. It will be worth it.