By Brett Shapiro, co-founder of Easy Doc Filing
Starting a business can be daunting. A certain level of uncertainty and doubt is unavoidable. Statistics surrounding business survival rates suggest that starting a company isn’t necessarily the safest investment you can make; however, it can also be extremely rewarding. You can be your own boss, set your schedule, manage operations as you see fit and, if you’re successful, see a healthy return on investment (ROI).
In order to achieve the latter and avoid unnecessary risk, each new business owner should consider the following at the outset of forming a company.
It’s an all-too-familiar story: You finally settle on a name for your business, you run some Google searches and it doesn’t appear to be in use, and even the website is available. You hire your branding team and get to work.
Three years later, after exponential growth, your name becomes known nationally. Then you get a cease-and-desist letter from an attorney representing another small business that claims the right to your name (or one similar enough that they claim confuses the public). You either rebrand and pay damages or get embroiled in a lengthy lawsuit. It’s a lose-lose situation.
In an age when most companies utilize the internet to sell services or goods nationwide or worldwide, you cannot be too careful about selecting a trade name that you can adequately defend. Conducting trademark searches and filing your trademark are key steps that every business should take.
Written Business Partner Agreements
You’ve met your ideal business partner or joint venture partner. Your industry is evolving rapidly, and every day that passes feels like a missed opportunity. You might think you can’t afford to push pause for a few weeks to prepare a written agreement, but you can’t afford not to.
Partnership disputes are akin to business divorces because they can be every bit as ugly, no matter how close the parties were at the outset of their business. These cases, when advanced to litigation, tend to be extraordinarily expensive as emotions and livelihoods are on the line. Some disputes are attributable to a partner trying to take advantage of the fact that there was no formal agreement, using that leverage to get a better deal for themselves. But often the disputes are not that sinister; typically, the parties simply had different ideas about the future of the company and their respective roles.
It’s simple: Just like good fences make good neighbors, good contracts make for good partnerships.
As your business grows, you will likely need to hire help. Do you hire them as employees or independent contractors? The proliferation of companies like Uber and Lyft — and many others that source work through applications — is a hot-button issue, and there is little reliable settled law. To illustrate this, California uses a multifactor test to determine whether someone is an independent contractor or employee. This test, however, continues to change and must be monitored carefully. Employment law in other states is also currently in a state of upheaval around this issue and is therefore one of the most critical issues to discuss with counsel.
Documentation and Record Keeping
In business, it’s generally best practice to keep good records, always use written contracts and have a certified public accountant or bookkeeper manage your finances. These practices, however, are critical if you plan on attracting investors or buyers down the road. When a buyer knocks on your door, interested in purchasing your company, the due diligence process can be quite intimidating. Keep your house clean and your affairs in order now rather than planning for a rushed spring cleaning at the time of purchase or investment negotiations.
For the modern company, intellectual property (IP) is your most valuable asset, whether it’s trademark goodwill, patents, copyrights or trade secrets. If you fail to adequately protect your IP, you run the risk of waiving your right to protect it in the future. IP audits, the use of employee confidentiality and assignment agreements, the use of NDAs with outside persons/entities and the use of cease-and-desist letters upon discovery of violations are all key to protecting these assets.
Planning for disaster now, while admittedly unpleasant to think about, can actually help prevent it in the future.
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
Brett Shapiro is co-founder of Easy Doc Filing, a resource center that takes care of the mundane, yet critical, formation documentation.
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