Protecting Your Business: Top Legal Needs for Start-Up Companies

top legal considerations for startups

Starting a new business is a tremendous accomplishment and can be an exciting endeavor. In an effort to get their product or idea “out there,” some start-up companies may overlook the importance of legally protecting their products, ideas, the business, and even themselves as individuals. Here are some legal needs start-up companies must keep in mind at their inception:

Incorporating the Company

Many start-ups overlook the idea of incorporating their company. The most important reason for a start-up company to incorporate is to protect the individual owners from business liabilities. Incorporating your company is essentially creating a separate person, making the business separate from the person. Therefore, any debts or liability will not affect the owner’s or shareholders’ personal assets, only what they have invested. Additionally, as an incorporated entity, the company will likely find investment opportunities quicker and easier. Incorporation shows investors and potential partners that the company takes the business seriously

Creating Independent Contractor Agreements

Most start-ups hire freelancers. When doing so, it is important to distinguish between the hiring of someone as an employee or as an independent contractor. With employees, the company has to be aware of staying in compliance with labor and employment law issues. In addition to creating more costs for the company, employees can open up the company to liability if someone sues the employee for an act performed in the course of his/her employment. Independent contractors, however, are less burdensome, as none of the above issues apply. With independent contractors, the company simply must provide the contractor with a 1099 form at the end of the year for tax purposes. However, when using independent contractors, it is important that the company uses them properly and defines the relationship in writing before the work starts.

When creating an independent contractor agreement, there are three key things that should be in the contract:

1. Specify that it is “work for hire” to protect any intellectual property. In order to own the copyright to any work that a contractor does on the company’s behalf, the agreement must specific that it is “work for hire.” Doing this makes the company the “author” for copyright purposes rather than the contractor. Excluding this from the agreement places the company at risk for not owning its products or ideas.

2. Specify the exact work that you need completed and how the contractor will be paid. Being as detailed as possible eliminates confusion as to the responsibilities of both parties. It should be specific on deadlines for completed work, and should include a timeline for when the contractor will be paid.

3. Specify that they are an independent contractor and not an employee. This should be established explicitly. Related provisions should provide that the contractor must pay their own taxes, provide for their own insurance, and also, that they are allowed to work for others. As an independent contractor, they cannot have exclusivity to the company.

Registering and Trademarking the Company Name and Logo

A trademark is defined as a word, phrase, logo, or other graphic symbol used by a manufacturer or seller to distinguish its product or products from those of others. A word does not have to be unique to receive a trademark. It simply must be identifiable for the purpose in which it is being trademarked. The United States Patent and Trademark Office (USPTO) oversees the registration of a trademark. Once the trademark is registered, it prevents others from copying or cloning your mark. A trademark can be registered up to three years before the use of the trademark. It is beneficial to register a trademark in advance to:

1. Prevent someone else from registering the trademark;
2. Prevent the company from accidently infringing on another entity’s trademark;
3. Give yourself a stronger position in the event a trademark infringement issue arises; a registered trademark creates a presumption that the trademark is valid and that the company has exclusive use to the mark.

The registration application process can be very tedious and complicated. It is important to hire an experienced attorney to help you navigate the process and ensure that your trademark is properly filed.

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Posted - 05/10/2016