Starting a Startup
What is corporate law, and why is it important for startups?
Answer: Corporate law regulates the formation, operation, and regulation of businesses to ensure legal compliance and protect founders’ rights and assets.
What are the main steps in forming a startup?
Answer: Select a business structure, register your business, create foundational documents (e.g., bylaws, operating agreements), and obtain necessary licenses.
What business structure is best for a startup?
LLCs and corporations are popular for startups because they offer liability protection and flexibility in raising capital.
Do startups need a corporate attorney?
Also read:
- https://truelegalexpert.com/20-corporate-law-faqs-for-business-owners/
- https://truelegalexpert.com/25-questions-and-answers-on-corporate-compliance-and-regulations/
- https://truelegalexpert.com/30-key-corporate-law-questions-every-entrepreneur-should-know/
Answer: Yes, a corporate attorney can ensure compliance, draft contracts, and protect intellectual property.
What is the importance of an Employer Identification Number (EIN)?
Answer: An EIN is required for tax filings, hiring employees, and opening a business bank account.
Business Structure and Formation
What is the difference between an LLC and a corporation?
Answer: LLCs offer flexibility and pass-through taxation, while corporations have a formal structure with shareholders and potential for stock offerings.
What are Articles of Incorporation?
Answer: Legal documents filed with the state to create a corporation, detailing its name, purpose, and structure.
What is an operating agreement, and why is it important?
Answer: For LLCs, it outlines management structure, member roles, and profit distribution, preventing disputes.
What are bylaws, and are they necessary?
Answer: For corporations, bylaws set internal rules and are essential for proper governance and legal compliance.
What is a registered agent?
Answer: A person or entity designated to receive legal documents on behalf of the business.
Equity and Ownership
How should founders split equity?
Answer: Equity must represent contributions, roles, and responsibilities. A vesting schedule should be utilized to encourage commitment over the long term.
What is vesting, and how does it work?
Answer: Vesting gives ownership rights gradually over time in order to keep founders or employees with the company.
What is dilution, and what does it mean for founders?
Answer: Dilution is the lowering of ownership percentages when new shares are issued-often during a round of fundraising.
What is a shareholder agreement?
Answer: A document that outlines the rights and responsibilities of shareholders, including voting and transfer restrictions.
How can founders protect their ownership?
Answer: Vesting, maintain majority control, and include protective provisions in governing documents.
Fundraising and Investors
What legal documents are required for fundraising?
Answer: Term sheets, investment agreements, and cap tables are required to secure investors.
What is a term sheet?
Answer: A non-binding document outlining the terms of investment between the startup and investors.
What are convertible notes?
Answer: Debt instruments that convert into equity at a future date, often used in early-stage fundraising.
What is a SAFE agreement?
Answer: A Simple Agreement for Future Equity is a funding mechanism giving investors the right to future shares without creating debt.
What are securities laws, and do they apply to startups?
Answer: Securities laws regulate fundraising and stock issuance to protect investors. Startups must comply to avoid penalties.
Intellectual Property (IP) Protection
What is intellectual property?
Answer: IP comprises trademarks, copyrights, patents, and trade secrets that safeguard a startup’s brand, inventions, and proprietary information.
How do I safeguard my startup’s name and logo?
Answer: Register trademarks with the U.S. Patent and Trademark Office (USPTO).
What is a copyright, and what does it protect?
Answer: Copyrights protect original works such as software, written content, and designs.
What is a patent, and when should one apply for a patent?
A patent protects an invention or a process. An early application guards rights and bars competitors.
How do I keep trade secrets confidential?
Use NDA and have limited access to sensitive information.
Compliance and Regulation
What are some of the essential compliance requirements?
File annual reports, maintain proper records, pay tax, and other employment laws, etc.
What is a certificate of good standing?
Answer: A state-issued document showing the business is compliant with the laws and has a right to do business.
What are the penalties for non-compliance?
Answer: Fines, legal consequences, revocation of good standing, or dissolution.
Does a startup require an employee handbook?
Answer: Yes, to have uniform policies and to obey labor laws.
What key labor laws should startups comply with?
Answer: Follow minimum wage, overtime, anti-discrimination laws and more rules on employee classification.
Contracts and Agreements
Why do startups need contracts?
Contract definition, limits litigation and keeps the business legal in cases of partnership, employment, or business transactions
What is NDA and When?
NDA defines the private information in discussions or collaborations that the other side needs to agree on.
What is a Non-Compete Clause?
Agreement not to engage in some level of business against the organization being founded within the stipulated timeframe
What is SLA?
Answer: Outlines the scope, quality, and terms of services between a business and its clients or partners.
How do I handle breach of contract?
Answer: Negotiation, mediation, or litigation in court if the need arises
Growth and Expansion
What are the legal considerations for hiring employees?
Answer: Labor laws, employment contracts, and classifying workers as employees or contractors
Do startups need business insurance?
Answer: Yes, insurance covers liabilities such as lawsuits, property damage, and employee injuries.
What is scaling, and how does it affect legal obligations?
Answer: Scaling means expanding the business, which sometimes necessitates updates to contracts, compliance policies, and governance.
What is an exit strategy?
Answer: An exit strategy is a plan for transitioning ownership, such as selling the company, merging, or going public.
How do I prepare for a merger or acquisition?
Conduct due diligence, review contracts, secure IP, and maintain financial transparency.
Key Take-Aways
Corporate law ensures that the startups are legally structured, operated, and grown.
Proper governance, compliance, and IP protection are important for long-term success.
Consultation with legal and financial professionals avoids pitfalls and navigates complex business decisions.
By answering these FAQs, a new startup will build a solid foundation to attract investors, achieve sustainable growth while minimizing legal risks.
