Once you have a vision, you’re ready to talk about the legal aspects of human resources. Choose a lawyer to walk you through the legal documentation you need to protect yourself, your employees, your business, and your clients. Getting the proper paperwork done ahead of time is of utmost importance. You want to ensure that you correctly pull together well-written offer letters with non-competes, confidentiality agreements, option agreements, and initial customer contracts. It’s better to be thorough up front. The last thing you want is for an unhappy client or employee to file a lawsuit against you because he or she felt a contract was misleading, unfair, or unclear.
It’s highly recommended that you find a lawyer who's responsive, responsible, approachable, and experienced in working with startup companies like yours. You should always read their terms of service and keep counter-signed copies on file.
Never blindly walk into a meeting with a lawyer. Do your own research and understand the legal documents that you want the lawyer to prepare. Don't pass off all that responsibility to a lawyer without knowing exactly what you’re looking for. Later on, you’ll have no one to blame but yourself.
According to Jules Miller, cofounder of Hire An Esquire, a staffing company that works with attorneys, you shouldn't be afraid to talk to several lawyers before you make a decision on who to hire.
“Find someone you like and trust,” says Miller. “Just because they have a certain pedigree and name doesn’t mean they’re the right person for you. While selecting your attorney, screen a couple of people. Give them the same issue you’re dealing with and ask them how they would approach it. See what approach resonates with you.”
According to Miller, here are some important topics to cover with your lawyer.
- Company structure: Figure out with your lawyer what your company's first steps should be. Ask about the best corporate structure based on the type of business you’re going for and whether you’re planning to seek outside funding. Certain structures are more cost effective because you get taxed at a lower rate, so do your research on what makes the most sense for your company.
- Employers, employees, and contractors: Talk to your lawyer about how many founders you have and whether you’re going to be hiring more people in the near future. Discuss whether you’re looking for contractors or employees, as it can have legal and financial repercussions.
- Intellectual property: This is one of the greatest assets of your company. Protected intellectual property includes ideas, logos, business names, and inventions. Consider asking employees or vendors to sign a non-disclosure agreement, also known as a confidentiality agreement. Through the contract, they agree not to disclose information about your company.
- Buy-sell agreements: Let’s say your partner decides to leave your new company. What do they get, and under what terms do they get what they get? If a partner dies and their ownership interest goes to a spouse, does the spouse have any say in the management of the company? Get all the “what-if” scenarios you can think of on paper and address them with your lawyer. One common mistake startups make is issuing stock without imposing vesting restrictions. If no vesting restrictions are implemented, a founder could leave after a few months and keep all of his or her equity.
- Trademarks: Don’t decide after years of doing business that you have to change your company's name because it's so close to another company’s name that they want to sue you. That why you should do your due diligence about your company's trademark. Remember that there is a six-month window after applying for a domestic trademark during which you can safely apply for a trademark in another country and have it backdated to when you first registered.
- Securities Law: This is just a big, scary term meaning that all companies big or small must file documents with their state securities commissioner as well as the federal Securities and Exchange Commission. This is an expensive, time-consuming, and potentially painful process, and most early-stage companies don’t deal with this until they’re ready for an initial public offering.
Startups often make the mistake of not complying with applicable securities laws. For instance, if founders issue shares to friends and family members who are not accredited investors, or if they hire consultants who are not registered broker-dealers to sell company stocks, they can face legal consequences.
As a rule of thumb, any time your company issues stock or grants stock options or compensatory equity awards such as stock bonuses, you must comply with registration requirements of state and federal securities.
When dealing with compliance, employment law is the first thing you need to be aware of. It affects the people who are able to keep your company afloat. In the world of employment, the motto is to "hire fast and fire slow." You definitely need an employment lawyer who can help you smoothly navigate the issues that come up. One of the most basic questions with regards to compliance is asking yourself in which states you need to be filing taxes.