The early days of start-ups are fast-paced, if not frantic. Most companies miss out on hiring legal services in their early days. However, this can prove to be a big risk, as legal issues can derail a company even before it starts. Here are some of the major risks that start-ups could face today.
1. Wrong Legal Structure
Deciding on the appropriate legal structure for your new business can be a big decision. The type of company you choose has a direct impact on your funding options, personal liabilities, and tax implications. Moreover, not only can the correct form of business help you save taxes, but it also protects your assets from aggrieved creditors. When you are seeking investment, it is crucial to gain the trust of your investors. Therefore, make sure you have an attorney on board who helps you formulate a sound legal structure for your company.
2. No Founders Agreement
We have all heard stories of bereaved founders falling out, for example, Jobs and Wozniack, or Zuckerberg and Hughes. Most start-ups are usually the combined efforts of two or more individuals. While these people play a significant role in starting the company, they can also play a huge role in its extinction.
Problems are likely to occur when the roles and responsibilities of founders have not been chalked out. Therefore, to avoid future disagreements, at the inception of the company, all partners should sign a Founders Agreement.
3. Regulatory Issues
All businesses are regulated by law, which is why not following regulations can prove to be disastrous for new companies. It is important to mention here that if you are in breach of regulatory laws, ignorance is not a defence. The best way to avoid these mishaps is to engage professionals from the very start. They can guide you regarding any legal clearances you might need for your company operations.
4. Undocumented Share Sales
Entrepreneurs fund their start-ups by selling the stocks in their companies to investors. There are severe legal ramifications for undocumented sales of shares. Securities laws regulate sales of shares. These laws have their filing and disclosure requirements. Companies can incur severe fines for breach of these laws. Consider getting help of legal experts to draft solid Shareholders Agreements.
5. Lack of Employee Contracts
Companies cannot function without employees. However, if your hiring is not documented, this could present a huge legal risk. Whether you are hiring a temporary worker or a permanent team member, you need employee contracts in place. These regulate the relationship between the company and the employee. They contain rights and obligations for both parties involved. Copies of these contracts need to be given to employees. Additionally, a handbook outlining the company’s policies should be given to the employees. Your company policies must cover leave, healthcare, benefits, etc.
Operations of a new business can be exhausting for entrepreneurs. They require a lot of time and multitasking, where knowledge of your legal obligations is necessary. Hire a legal expert or explore our growth and development projects if you don’t know where to begin. We can help you find the best suited legal advisory.