Frequently Asked Legal Questions Regarding Startups and Company Formation

Forming a business entity that fits the unique needs of a venture is one of the most critical aspects of a successful startup. The appropriate business entity for your startup depends on a variety of factors, including the number of people involved, whether or not you are seeking outside investment, and whether it is important to limit your personal liability for any debts the business may incur. Some of the types of business entities commonly utilized by Silicon Valley startups include partnerships, limited liability companies (LLCs), S-corporations, and C-corporations. These entities often require the preparation of a significant amount of paperwork and often have various pros and cons that founders should be certain to fully consider, so it is critical to consult with a Silicon Valley startup lawyer that is familiar with the startup business entity formation.

In any startup, it is extremely important for founders to thoroughly consider all of the options that they have available to them for obtaining funding. There are a number of options available, including issuing equity, borrowing money from traditional sources, crowdfunding, and others. When determining which option is right for your business, you should consider a variety of legal issues, including whether you will personally be liable if the business fails and whether you will have to give up a degree of control over the way that the company is run.

Crowdfunding is a type of alternative funding that involves raising money from a large number of small investors, usually through various Internet sites. Legislation recently enacted by the federal government removed some of the restrictions that made it illegal for private businesses to offer equity to anyone but accredited investors in return for funding, making crowdfunding a viable option for startups that once were relegated to traditional funding sources.

There are many different business models available for any entrepreneur, including a home-based e-Commerce operation, a retail store with a brick-and-mortar location, a tech company with several developers and employees, among many others. The business model you select for your startup should be carefully selected based on the nature of your idea, your capital, time constraints, and ultimate goals for your operation. Your model will help determine your costs, obligations, liability, legal requirements, scope of your operation, and much more. It is important to carefully consider your business model as it relates to your idea, including any foreseeable legal or financial implications.

The kinds of contracts that will be important to your startup depend on a variety of factors. Some of the more common contracts used in the early stages of a startup include the following:

  • Commercial lease agreements
  • Employment contracts
  • Operating agreements
  • Service agreements
  • End User License Agreements (EULAs)
  • Non-disclosure agreements
  • Investment term sheets
  • Founder agreements
  • Intellectual property assignments

Hiring an employee is a major decision for any company and often triggers a serious of legal obligations that should be considered prior to making your first hire. These include issues related to liability for discrimination, unemployment taxes, workers’ compensation insurance, workplace policies, and many others.

Yes. Data privacy laws apply to any business that has an online presence, and California actually is known for having the most significant and robust privacy protections for Internet users in the country. As a result, anyone operating a commercial website that collects information from visitors should consult with an attorney as soon as possible. Importantly, this law may affect companies that are not physically located in California but have potential clients or customers within the state who visit their website.

Intellectual property, or IP, refers to a work or invention that was created by a person’s intellect. IP can refer to creations such as logos, symbols, artistic or literary works, software, processes, manufacturing techniques, sound records, or dramatic works. IP can be protected in a variety of ways, including through the use of copyright, patents, trademarks, and trade secret protections. The type of protection that is appropriate or available to you will depend on the type of IP that you would like to protect.

Many businesses are subject to various state and federal regulations, and noncompliance with these regulations may result in significant fines or even your business being shut down. For this reason, it is critical for startup founders to discuss their business plans with an attorney that is familiar with the myriad state and federal laws that may apply to their situation.

Many startups hire consultants or other service providers on a per-project basis as independent contractors. The line between employees and independent contractors can become blurred, however, especially in situations in which an individual who has been brought on as a contractor develops a long-term relationship and integral with the company. Generally, whether or not an independent contractor will be deemed an employee in the event of a dispute depends on the degree of control the employer exercises over the way in which the independent contractor performs their work.

Yes. While, in the early stages of a business, “gentleman’s agreements” and other informal understandings may seem sufficient, this can quickly change, particularly if and when large sums of money start to be at stake. As a result, it is always prudent to formalize any agreements in order to avoid any unnecessary conflicts or litigation in the future.

Whether or not a founder will be personally liable for the debts of his or her business depends largely on the type of business entity chosen. An experienced startup lawyer will be able to thoroughly evaluate your risk and determine which type of entity is appropriate in your case.

The state of incorporation is a major decision that can have an impact on a variety of issues, including filing fees, flexibility of operations, taxation, and the outcome of any litigation that may occur. Many entrepreneurs and founders choose to incorporate in the state of Delaware for a variety of reasons, a decision that may or may not be appropriate in your case.

There are a number of ways a business can be taxed. Some business entities offer “pass-through” taxation, which means that any profits or losses attributable to the business simply pass through to the owner or owners. This may make sense in some cases while, in others, there may be significant benefits associated with electing to be taxed as a corporation, or simply incorporating.

There is no law that requires startup founders to retain legal counsel or consult with an attorney prior to starting a business. That being said, it is highly advisable to do so and to do so as early in the process as possible. Consulting with an experienced lawyer can help avoid significant issues from arising in the future and can make the entire process much more streamlined than it would be without the assistance of an attorney. In many cases, the cost associated with consulting with a lawyer is offset multiple times over by saving founders time, unnecessary conflict, and the costs associated with completely avoidable litigation or regulatory entanglements.

Entrepreneurs and founders who would like further information regarding the answers to the questions posed above or any other questions related to the legal issues with startups should contact Structure Law Group, LLP as soon as possible. To schedule a consultation with one of our lawyers, call our San Jose office today at 855-353-5377.

Frequently Asked Business Advisory Questions

At its simplest form, a business plan is a guide, written or unwritten, that defines the short-term and long-term goals of your business. It includes a strategic roadmap detailing the steps on how to achieve these goals.

Preparing a solid business plan that is attractive to potential investors and meets the form requirements of financial institutions can take hundreds of hours to complete. Time that you may not have, and should be spending building your team, developing your product, and establishing your distribution channels and customer base. Our business experts can streamline the process for you as we are experienced in creating business plans for different companies in various industries. Our business professionals can help you identify potential issues and raise questions that you may not have even thought of.

The business plan is only one of the many things that we can do for you. If after reviewing your business plan, we find that it is solid, we will advise you of your next practical steps. We can also offer you alternatives as we analyze the current market for you and find new opportunities you may not have considered. Every business is different, but every business has a specific need at any point in time. Whether this be getting off the ground, or moving on to the next level, we will help you achieve your goals.

We are business experts with a wide range of experience from different industries. We have worked with several companies in various situations. We offer you objectivity and a fresh perspective on where you are in your business. For example, you can easily tell when your bottom line is black or red, but it takes professional expertise to determine if there is an opportunity to grow the business and if it is the right time. We can also advise you on how to build and expand your brand, among other things.

In our years of experience helping raise funds for different companies, we have gathered valuable knowledge regarding investor funding strategies. We will be able to match you and introduce you to the appropriate investors whose investment portfolios align with your business and risk profile. We can assist you in preparing your pitch decks and other documentation required for your investors’ due diligence.

Our fees depend on the needs of your business. We can fully customize our services according to your business needs. Contact us for an initial consultation.

Frequently Asked Digital Marketing Questions

Anything dealing with something online or web based (mobile or web) is Digital Marketing. Marketing based on Email, PPC (pay per click), SEO (search engine optimization) and including but not limited to web design is digital marketing. If you are planning to go online, or already online and plan to expand your business then you need digital marketing.

Search Engine Optimization (SEO) means everything done on-site or off-site to get your website ready for a better visibility on search engines like Google, Yahoo, Bing, Baidu and others.

In the simplest of words, pay-per-click advertising means that every time somebody clicks on the ad the advertiser pays a fee. It is one of the most effective ways to get traffic, if done properly.

It is a PPC (for more info visit here) platform where the advertisers bid on the keywords and pay a fee every time the user clicks.

Yes! The future is mobile and according to several reports approximately 63% of traffic on search engines comes from mobile phones and tablets. If your website is not mobile friendly you are simply leaving the majority untapped.

An absolute necessity! The world today revolves around social media and by not advertising on the social platform you are losing all the potential leads who are on Facebook, Instagram, Twitter, LinkedIn, YouTube and more.

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