When starting a business or company with other people, we cannot afford to ignore certain legalities. We watched The Social Network, the fictional retelling of the founding of the juggernaut Facebook. It told the story of how Mark Zuckerberg managed to boot out his fellow co-founder Eduardo Saverin. The latter’s stake was diluted, resulting in the movie’s most iconic scene towards the end.
We can go back and forth on who was at fault, but one thing’s for sure. The lack of legal clarity from the onset of the company led to litigation that was toxic for both sides, even if everyone ended up with millions of dollars in the end.
If you are starting a tech company with a few partners and developers and you want it to go as smoothly as possible for years to come, here are some items on your legal checklist that you cannot afford to ignore.
Draft a co-founder agreement
From the very beginning, everyone involved in the company needs to agree on the founders and co-founders. Everyone should agree on the minute details of the business relationship and partnership. Ignoring this vital step of the process can cause significant legal issues down the line.
The founding of Facebook is still an excellent example of this, as the Winklevoss twins laid claim to the idea behind Facebook, which also resulted in litigation. The founder agreement can be akin to a prenuptial agreement, and here are some of the most crucial points that should be on the document:
- How the equity will be split among the founders and the percentage ownership
- What will happen if a founder leaves
- The founders’ roles and responsibilities
- How a founder can be removed
- How critical day-to-day decisions will be made
- How the sale of the company will be decided
- Expectations for every founder
- How every founder will invest in the company
- What will happen if a founder is not meeting expectations under the agreement
- The overall vision and goal for the company
Consult with lawyers
Even if your tech startup is starting small, it would still do everyone a world of good if you consult with lawyers. They can help protect your intellectual property and set up your business as a limited liability company (LLC) or corporation, which can then protect you and your co-founders as individuals. Here are some tips for finding law firms and lawyers to help you at the start of the business:
- If you are developing new technology, partner with a software patent law firm to help you acquire the sturdiest intellectual property protection that’s constitutionally available to you.
- Ask them to explain the key differences between sole proprietorship, general partnership, and other types of partnerships, LLCs, and corporations. Every single type offers various advantages for the founders and the incoming investors. You can change from proprietorship or partnership to a corporation or LLC anytime. But know that the cost of doing so might be high, and it can be a potentially lengthy process.
- Seek help from your lawyers in ensuring that everything the company does is above board, especially where data privacy is concerned.
Choose a unique company name
The last thing you want is for your company to infringe on another business’s trademark. Doing so can cause so many problems down the line—it might confuse your demographic, and you might find yourself staring down the barrel of a trademark lawsuit. Here are some tips to ensure that your chosen name and brand identity is unique to your startup:
- Do a quick Google search on a possible company name. See if other entities are already using it—it doesn’t matter if they’re on the other side of the globe. If it’s already the name of other brands or companies, drop it and choose something else on your list.
- Check the U.S. Patent and Trademark Office website and type in your proposed name to see if it has already been trademarked by somebody else.
- Think of all the international and cultural implications of your chosen name. Make sure it’s not offensive in other languages and countries.
- Choose at least five names and test them out with employees, family members, friends, and other people in your life whose opinion you trust. Consider doing Google surveys, too.
There are plenty of other legalities you need to remember, but that’s why consulting with lawyers is a must. How your company begins will influence its trajectory, so make sure to start on the right foot to give your business a fighting chance. Good luck!