So, you have this great idea for a startup. Congratulations! This is an exciting time, but it’s also a time to be cautious. You need to consider several legal aspects before moving forward with your startup. Here are some of the most important ones.
Choice of Entity
One of the first decisions you’ll need to make as a startup founder is choosing what kind of legal entity your business will be. The most common options are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each has its advantages and disadvantages.
For example, LLCs offer great asset protection, but they’re not always the best for tax purposes. On the other hand, corporations offer great tax benefits, but they’re not always the best choice for asset protection.
Asset Protection Strategies
Once you’ve chosen the right business structure, you must develop an asset protection strategy. There are a number of different ways to protect your assets, and the best approach will vary depending on your particular situation.
For example, suppose you’re starting an LLC. In that case, you can use what’s called a charging order protection provision in your operating agreement. This provision gives you some protection from creditors if one of your LLC members gets sued or otherwise becomes indebted.
Another common asset protection strategy is creating multiple LLCs or corporations and placing each in a different state. This can help protect your assets from creditors in one state, even if you’re sued in another state. If you need more help with this, a wealth management service provider can help you create a solid plan for protecting your assets in the short and long term.
Tax Planning Strategies
It’s necessary to consider taxation when starting a business. There are several different taxes that businesses have to pay, including income taxes, self-employment taxes, payroll taxes, and property taxes. One way to minimize your tax liability is to choose the right business structure.
Another way to save on taxes is to take advantage of available tax incentives such as the research and development tax credit or the low-income housing tax credit. There are many other tax planning strategies available, so it’s important to consult with an attorney or tax advisor to find out which ones are right for you.
Intellectual Property Protection
When starting a business, protecting your intellectual property (IP) is important. Your IP makes your business unique and sets it apart from your competitors. Whether it’s a new product, a new process, or a new piece of software, if you don’t protect your IP, someone else could copy it without repercussions. There are three main ways to protect your IP in the United States.
To be awarded a patent, the government grants an inventor or assignee a set of exclusive rights for their invention(s) in exchange for its public disclosure. There are utility patents, design patents, and plant patents.
Utility patents are the most common type and cover inventions such as machines, processes, and manufactured articles. Design patents cover the ornamental design of utilitarian objects. Plant patents cover new varieties of plants.
Copyrights protect original works of authorship, such as literary works, movies, music, and architecture. Unlike patents that expire after 20 years, copyrights last for the author’s life plus 70 years. Copyrights do not require registration, but registration does give the copyright owner certain advantages, such as the ability to bring a lawsuit for infringement.
Trademarks protect words, phrases, logos, and other symbols that identify the source of goods or services. Trademarks can last indefinitely as long as they are used in commerce and protected from infringement. Like copyrights, trademarks do not require registration. Still, registration does offer some benefits, including constructive notice to the public of the existence of the mark and a legal presumption of ownership nationwide.
If you’re hiring employees for your startup, there are several legal issues you need to be aware of.
The first thing to be aware of is equal employment opportunity laws. These laws prohibit discrimination in the workplace based on race, color, religion, sex, national origin, disability, or age. This means that when you’re hiring for your startup, you can’t give preference to one group of people over another.
Another thing to keep in mind is the minimum wage. This varies from state to state and requires employers to pay their employees at least a certain hourly rate. Also, suppose you have employees working for your startup rather than contractors. In that case, you must comply with workers’ compensation laws. These laws require employers to provide insurance coverage if an employee is injured on the job. Again, the specifics of these laws vary from state to state.
These are just a few legal aspects you must consider when building a startup. Think long and hard about each one before moving forward—and consult with experienced business and employment law attorneys who can help you navigate these waters safely. Doing so will give your startup the best chance at success!