Launching a startup is a thrilling yet terrifying journey fraught with many challenges, from designing business models to setting up funding and marketing strategies. Understandably, many entrepreneurs spend a lot of their time and attention on the aforementioned, leaving legal considerations till ‘some later time’. However, it is also crucial to pay attention to the legalities of establishing a startup from the outset, as this can protect against future risks and disputes.
In this blog post, we will walk you through the essential legal considerations you should address as a startup to avoid common pitfalls and set up your company with a strong legal foundation.
Choosing the right business structure
Building a strong legal foundation for your startup begins with choosing the right business structure. But to do so, you must understand that there are several different business structures, each with its own advantages and disadvantages. The common ones are:
Sole Proprietorship: The simplest form, and may be best for a business owned and run by one person where the business is more a hobby rather than a principal source of income. However, it carries the greatest liability, as the owner is liable for all debts and losses.
C Corporation: This may be best for businesses where the business owner(s) are looking for outside investors, are interested in fast growth and potentially a quick sale of the busienss. It is more complex and requires compliance with extensive regulatory requirements.
Limited Liability Company (LLC): This may be best for a busienss where the business owner(s) want to be at the forefront of their business for the long-term. The LLC provides flexibility from a legal and tax perspective. It offers liability protection without the complexity of a corporation.
Some of the factors to consider when choosing a legal structure are,
The level of control and ownership you desire
Your potential liability as owners of the startup
The ease of raising capital
Tax implications, and
Administrative requirements
Once you answer the question of what kind of business structure you want in your startup, you can then begin the registration process. This would require your being compliant with federal, state and local regulations.
Working with an experienced corporate lawyer will make it easier for you to build a strong legal foundation for your startup.
We have established that a strong legal foundation is critical to the long-term success of your startup. Now let’s talk about how having a competent legal term can facilitate this for you and what to look out for when choosing a corporate lawyer.
Having a competent legal team working with you from the early stages can make a significant impact on your startup’s trajectory, helping to set the stage for effective scaling and navigating the many challenges that come with establishing a startup.
Ensure that your corporate lawyer and their firm are focused on and have experience in startups and corporate matters. Request their history working with startup clients, recent deals they’ve handled, and if they specialize in a specific sector or industry. Also, be sure to discuss cost structures and alternative fee arrangements they have that can get you the legal support that aligns with your business needs.
Please contact Serna Legal Services at (312) 601-9859 or info@sernalegalservices.com if you’d like to learn more about BUILDING A STRONG LEGAL FOUNDATION FOR YOUR STARTUP.
This content is published by Serna Legal Services, LLC and is available for informational purposes only and is not considered legal advice on any subject matter. By viewing this content, the reader understands there is no attorney-client relationship between the reader and the publisher. The content should not be used as a substitute for legal advice from a licensed professional attorney, and readers are urged to consult their own legal counsel on any specific legal questions concerning a specific situation.
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