Five Legal Aspects of Startups Every Founder Should Know

Many people aspire to start their own business and become successful in it, but only a few of them actually get success. When entrepreneurs start their firms without basic legal knowledge, they are likely to fail or come under legal scrutiny.  

It’s vital to recognize that considering the legal aspects of your business is a non-negotiable requirement. As a founder, you must proactively address these matters to safeguard your venture’s future. One key decision is selecting the appropriate business entity. Opting for a Limited Liability Company (LLC) can be an excellent choice, offering personal asset protection. By establishing an LLC, you minimize your liability for any damages incurred by customers in relation to your business. This means that your personal finances and assets are shielded, ensuring that customers cannot go after them in the event of product issues or delayed services.

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Besides taking into consideration the type of business entity, here are some more legal aspects that every startup founder should know:

  1. Official Intimation On Your New Business

    In certain states, there is a requirement for startups to publicly announce their business launch in major newspapers. For example, states like Arizona, New York, and Nebraska have specific rules regarding this. Failure to comply with such regulations can result in legal penalties or your business not being recognized by the state. Therefore, if you plan to launch your startup in any of these states, make a grand announcement and publish an official statement in a local newspaper to ensure compliance.

  2. Federal Tax Obligations

    As an entrepreneur or startup founder, it is crucial to be well-informed about the federal taxes applicable in your state. Once your business is up and running, it’s essential to have a clear plan for meeting your federal tax obligations. Don’t delay in obtaining an Employer Identification Number (EIN) from the IRS, which you can conveniently apply for online, right from your office.


  3. Official Agreements of Founders

    Founders must have an official agreement in place, outlining the terms and conditions among partners or co-founders. This agreement is an absolute necessity and should be drafted and signed by all stakeholders before proceeding with any other actions. Putting everything in writing ensures clarity, eliminates ambiguity or confusion, and plays a crucial role in discussing potential negative outcomes, each co-founder’s responsibilities during challenging times, and their expected liabilities. Memories may fade, and relationships can change, but a well-drafted agreement will always remain a legally binding document.


  4. Safeguarding Intellectual Property

    Founders need to safeguard their intellectual property, patents, and other rights necessary for manufacturing, marketing, or selling their products or services. Violations of trademarks and copyrights can have serious legal repercussions that can negatively impact your business. From the name of your firm to the brand logo and all aspects of product marketing and sales, ensure that everything is in order and not infringing on any previously trademarked or protected intellectual property. Failing to do so can result in legal actions, including cease and desist orders and subpoenas. To protect your intellectual property, it is advisable to register your firm with the U.S. Patent and Trademark Office at the earliest opportunity.

  5. Raising Funds for Your Business

    It’s not always possible to sustain your business through bootstrapping alone. Time and again, entrepreneurs have to go and find suitable approaches to raising funds. Each fund raising method and approach differs and has their own pros and cons. Some of the ways to get funded for your newly-launched enterprise are crowdsource, angel investing, bank loans, and borrowing from friends and relatives.  

    Thoroughly evaluate each option and select the one that best suits your business needs, ensuring unanimous agreement among all stakeholders.

In Conclusion

These were just some of the legal considerations that every startup founder has to consider before getting started with their business. But the list is endless. At each step, you may need to follow all the legal procedures necessary for the purpose. For example, when you hire employees, you may need to legally insure them. If any employee suffered an injury while on duty, you need to provide them with worker’s compensation insurance.

Similarly, you have to follow plenty of legal rules while getting ahead with your business expansion plan. It is highly recommended to engage the services of a competent lawyer who can guide you through these complexities, allowing you to focus on critical aspects such as lead generation and running your business. 

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