nyc city street

Common Ownership Issues in Start-Ups  

The difference between creating a success of a start-up business or a failure can depend on how you anticipate potential problems and effectively manage them. While every industry has its own challenges, a few ownership issues are common to all start-ups. 

Establishing how the business will be set up, how it will operate, and what happens if one partner wants out before you open your doors could help you avoid potential problems.

No Partnership Agreement

Partnership agreements are crucial because they explain the terms of the business endeavor, which can help prevent disputes over money or authority.

Business partnership agreements outline each partner’s duties; how much each partner contributed to the business, including money, physical property, and intellectual property; and how the profits will be distributed. 

Not Starting the Business as a Corporation

You may be liable for higher taxes and have less legal protection if you don’t start your business as a corporation or limited liability company (LLC). A business lawyer can help you set up the right kind of corporation. Common types of arrangements include:

  • Sole proprietorship
  • General partnership
  • C corporation
  • S corporation
  • LLC
  • Limited partnerships

Each of these enterprises offers significant advantages for business owners. The savings through business deductions and accessibility to capital can make growing your business easier. 

Registering as a corporation also provides protection from business creditors and from being personally sued in the event of an accident.

Not Establishing Standard Contracts

Every company should have its own contracts for dealing with vendors and clients, with favorable terms. 

While businesses can use contracts that are common in their industry, these contracts should be tailored to that business’ particular needs. An experienced business lawyer can draft your contracts with clearly stated pricing, when payments are due, and any penalties or interest.

Your contract should minimize any warranty or representation about your goods or services and limit the company’s liability if the product or service doesn’t meet expectations. 

Don’t forget a force majeure clause that relieves your company of breach if unforeseen circumstances occur. Finally, include a clause for arbitration or how disputes will be resolved.

Failure to Comply with Securities Laws

The securities laws for most states have certain statutes governing their sale and disclosure requirements. If you don’t comply with federal and state securities laws, you can have significant financial penalties. 

You may have distributed shares of stock in the company among the founders or have given them to friends, family members, or angel investors who helped with start-up costs. Ensure that the transfer of these shares is compliant with securities laws.

Not Protecting Your Intellectual Property

Any unique product, service, or technology should be protected as your intellectual property (IP). The company founders and investors have a significant interest in protecting their own IP and avoiding infringing on other parties’ intellectual property rights. Common protective measures your business lawyer can help you take are:

  • Patents
  • Copyrights
  • Trademarks
  • Service marks
  • Trade secrets
  • Confidentiality agreements

Business attorneys can also draft your confidentiality and assignment agreements for employees.

Not Having Proper Employment Documentation

To legally employ your staff, you need to fill out the proper employment documentation forms. Typical employment forms for start-ups include an IRS Form W-4, the employee’s withholding allowance certificate, and the USCIS Form I-9, which establishes the employee’s legal right to work in the US. 

You may also have confidentiality agreements and an at-will notice of employment, which states that the employer or the employee may terminate the employment at any time for any reason. Benefit forms, including health insurance and 401(k) plans, are typically included here as well.

If you have an employee handbook explaining company policies and regulations, an acknowledgment of receipt of that can be part of your employment documents. 

Having a business lawyer draw up legal documents, contracts, and partnership agreements for your start-up protects you from legal and fiscal liability. 

At Woods Lonergan, our business lawyers are experienced with regulations in New York State and can review your contracts and legal documents. Get in touch with our team today.