Your Legal Checklist for Starting a Business
We sat down with David Wood, Owner of Plan Right Law – a law firm specializing in estate, business, and Medicaid planning – to ask which legal matters should be on a business owner’s checklist when they start a business. He gave us seven items to focus on.
- Founders’ Agreement
- General Counsel Audit
- Raising $$$
- Virtual Data Room
- Entrepreneur Issues
- Long-term Plan
- Legal Services Available to You
Look at whether you need or have a founders’ agreement – it’s a critical piece for any partnership but is often overlooked. It helps everyone get on the same page so they know the expectations of the partners as they go into the venture. Ninety percent of businesses fail within the first three years and one of the main reasons is disputes among the founders as to what their responsibilities are. Having that agreement up front can really avert a lot of the problems that would otherwise come down the road.
General Counsel Audit
General counsel is a fancy name for an attorney who is employed by the company. Small businesses typically can’t afford to have an attorney on staff so what I suggest is that a startup or a small business look at having an attorney come in on a project basis. This attorney will look at the company’s foundation, the governing documents, entity type, structure, domicile of the business, licensing requirements, registration requirements, tax matters, ownership & control, and capitalization table. In the general counsel audit the attorney should also look at intellectual property to make sure it’s protected – any trade secrets, patents, trademarks, or copyrights. Part of this audit is to position the company to raise capital, and it becomes more attractive to investors when all of the information is there for them to look at.
In Utah, entrepreneurs raise money the wrong way all the time – meaning laws are violated. If you’re going to ask investors for money in return for ownership of stock or debt, it means you’re selling securities or interests in your company. You need to either be licensed as a broker or you need to fit an exemption. Before you seek capital, talk to an attorney who knows securities law to find out the rules. He or she can make sure you’re complying with federal regulations and state blue sky laws. You don’t want to end up as a bad news story. A friend of mine is a securities lawyer and blogger. If your name shows up in his blog, it’s usually not a good thing.
Virtual Data Room
Keep up-to-date policies and procedures in one centralized location on a cloud-based service like Amazon or Google. Any document that an employee would like to refer to – i.e. employee manual or processes – should be housed there. The goal is to have a location where all documents are easily located. A lawyer can help you set this up and can draft any necessary documents that should belong there.
It’s important as a startup or small business to identify your resources and know what your needs are. For example – web development, SEO, review management, marketing specialists, business coaches, or accountants. One of the things I’ve worked hard to develop is a network of really competent, trustworthy professionals. I have good relationships with a wide variety of industries, and I love to be a great resource for clients.
If you’re going to have partners, you should have a buy-sell agreement in place so when someone exits the picture you know how that will be handled. It’s also critical that all of your records and data is gathered and current and can be found in your virtual data room. If you have someone interested in buying your company, then you can easily give all of these documents to the investor to make it a really attractive buy.
Legal Services Available to You
In addition to good, sound advice – a lawyer should know all the necessary details about running your business from a legal, tax, and operational perspective. They should help you implement an appropriate business structure, draft the operating agreement or bylaws, and customize a plan moving forward. We always want to consider the other end of the business too – a succession plan – to help provide a comprehensive view, including estate planning issues. You can go to an online service, but one thing those don’t give you is the opportunity to sit down with someone who has knowledge and experience that you simply don’t have. As a lawyer, I have seen countless business owners go through the same process and you won’t get that knowledge from a template you buy at the store.
For a free initial consultation, you can contact David Wood at email@example.com to schedule an appointment.