An Ultimate Legal Guide to Follow While Establishing a Startup

An Ultimate Legal Guide to Follow While Establishing a Startup

Purchasing and starting your own business is a big undertaking. With creative ideas and a pumping workforce, it is necessary to have the legal formalities taken care of to give your business a smooth start! Let us have a detailed look at the legal formalities required in order to start a business.

Starting a business comes with great responsibilities to work on. The first step in starting a business is to get its paperwork done. It is not a myth that establishing a startup requires a number of legal procedures to be done in order to have a legal business. Most entrepreneurs might feel stressed at this stage. Hence, we have simplified the legal procedures one needs to follow while starting a business.

Every business has its own set of rules and requirements. Depending on your domain, it is the duty of the owner to research all the legal requirements and take care of them beforehand. You can take the help of legal attorneys, but it is necessary to figure these things out from the day of formation.

Form a Limited Liability Company (LLC) Or a Corporation
Agreement for the Shareholders
Bylaws
Assignment of Intellectual Property Agreements
Trademark
Non-disclosure Agreement
Articles of Incorporation/Association
Get the Required Permits and Licenses
Insurance Can Help You Protect Your Company
Agreement of the Founders

Form a Limited Liability Company (LLC) Or a Corporation

The first step in getting started with the real procedures for the startup is to make a decision for choosing a suitable business structure. Basically, there are two options to consider from. Limited Liability Company and corporation are the two choices made available at the start with both the options carrying their own pros and cons.

The best option in selecting LLC is that it will save you from your personal liability attack. For a simple consideration, when a startup fails and a company goes bankrupt, the personal assets of the person like a car and home will not be affected by it in LLC. One can also file their business revenue as a part of income tax. But they will also be required to pay self-employment tax on the contrary.

The corporation is also termed a C corporation. It is an expensive method to go for and is also quite hectic to create it. Basically, a corporation is a legal entity apart from its owner or owners. And if to be considered, they offer the best personal liability protection.

Agreement for the Shareholders

A Shareholder's Agreement must be in place whenever your firm is ready to move forward with private financing from angel investors or from venture capital firms, as the case may be.

It is one of the most important startup documents since it determines the shareholders' rights and obligations, as well as their ability to execute such rights. These contracts are extremely important since they outline the connection between a firm's shareholders and are crucial if a co-founder decides to leave the company.


Risks and Rewards of Startup Investing
Startup investing is a great opportunity for earning profits. However, it may not always be successful as it comes with various risks and rewards.

Bylaws

A set of rules is always the right place to start if you are starting out a company of your own. Bylaws are these sets of regulations that ensure the smooth functioning of a business both internally and externally. These laws are not only imposed on employees but they also provide a voice for their thoughts and opinions.

These rules are made very meticulously, keeping in mind the requirements of employees at all levels of the corporation. They also specify the election rights to decide the leadership of a company, along with other aspects that can severely impact the internal workings of an organization.

Assignment of Intellectual Property Agreements

Intellectual Property (IP) is one of the most important aspects of any company, big or small. Companies can go to great lengths in order to protect their intellectual property. Failing to do so can lead to losing the value of a startup by the infringement.

There are two different forms of Intellectual Property agreements to consider. A shareholder and a startup enter into a technological assignment agreement. The shareholder assigns his or her intellectual property to the corporation in this case. These are the intellectual properties of individuals prior to the company's creation.

When a company's employees create an innovative product or service, invention assignment agreements are important. Invention Assignment Agreements ensure that, in this scenario, the corporation owns all rights to the IP portfolio.

An Intellectual Property Assignment Agreement could be one of the most important legal contracts for your startup, determining whether or not you can get the funding you need to expand. This is especially true for technology companies, as investors and venture capital organizations frequently assess the worth of your IP portfolio.

Trademark

Trademark
Trademark

Trademarks can be a word, phrases,s or symbols. The prime purpose of a trademark is to differentiate between similar products of different companies. Trademarks are associated with the protection of the company's intellectual property.

Trademarks are the best method to differentiate and identify your company from others. Registering for a Trademark is equally important as gaining a business license. One can get their trademark registration done by visiting the trademark registration portal or physically visiting the trademark registry offices.

Trademark strengthens and protects the business from any illegal competition or imitation. The disadvantage of the trademark registration process is that when you register a trademark with the trademark office, everyone with a similar-sounding name is notified and given the opportunity to object, so you may find that people who would not have been interested in what you're doing before suddenly become interested in a specific trademark.


Top 5 Best Domain Registrars to Choose From in 2022
Are you looking for the right domain registrar but confused about which one to choose, here we have listed the top 5 best domain registrars.

Non-disclosure Agreement

A Non Disclosure Agreement is a necessity for every business deal. It is the first thing you should take care of before finalizing any deals. This NDA not only safeguards your interests but also makes sure that the other party’s privacy is also under safety. These documents are necessary to make sure that no kind of breach can occur midway and that the interests of either party remain unharmed.

Before you go ahead and start discussing the terms and conditions of a deal with any third party, it is always advised to go for an NDA first. All terms of the deal should be stated clearly in this document. In case of any breach or dispute, there should be clear terms for termination present, that would benefit both parties to close the deal without any hassle.

Articles of Incorporation/Association

Before establishing a business it is necessary to have a clear business plan. Most amateur entrepreneurs make similar mistakes that cost them heavily later on. Going for sole ownership of a company is not as easy as it sounds. There are huge tax bills that ultimately fall upon the shoulders of the sole proprietor.

Most businesses that run successfully over long periods tend to have multiple shareholders. Not filing tax returns on time, with the Revenue Service can also result in the owner losing his personal property. It is smart to try to avoid heavy taxes and bills during the starting period of any business.

This can severely hinder growth. However, having a number of shareholders, all responsible for the big decisions can help a company run smoothly without financial troubles.

Get the Required Permits and Licenses

Small Business Administration Website
Small Business Administration Website

Another mandatory step in legal formality is to get a business license and permits from the federal and state government in order to start a startup. One can prefer to look for a different license with respect to their field of work and the area of development.

A common list of federal business licenses is given by the Small business administration. One needs to apply for an applicable business license and permit for their desired area. Registering the company with a business license is legal evidence of being approved by the local government. One needs to pay a certain amount of fees in order to avail of their business license.

This amount can vary for different businesses and can also be affected by the place of the startup. All these factors are majorly decided at the state government level.

The above graph shows major challenges faced by entrepreneurs while establishing a startup
The above graph shows major challenges faced by entrepreneurs while establishing a startup 

Insurance Can Help You Protect Your Company

When the personal liability protections provided by your specific business structure are insufficient, business insurance can help. Not only can business insurance cover your personal assets, but it can also safeguard your company's assets.

The prime two types of insurance mandated by law are unemployment and disability insurance. It's also a smart idea to get business insurance to safeguard your company from other threats. The following are some examples of common company insurance policies:

a) General liability insurance: It safeguards your company from a variety of financial losses, such as property damage, injury, medical concerns, and litigation settlements or judgments.

b) Insurance for product liability: If your company sells products, this insurance covers you in the event that one of them is defective and causes a consumer injury.

c) Commercial property insurance: It protects your firm from property loss or damage caused by natural disasters, accidents, or vandalism.

Agreement of the Founders

In the case of startups with numerous founders or founding parties, signing an agreement that describes the working coordination of all parties and forms outlines to establish limits becomes important. It's to keep any future confrontations at bay. To avoid any disagreements among the startup's founding members, all co-founders should sign a complete operating agreement.


Why Startups Fail: 8 Tips to Decrease Chances of your Startup Failure
90% of Indian startups fail in the first 5 years of their inception. Want to decrease the chances of startup failure?. Here are a few tips to avoid startup failure.

Conclusion

These startup legal formalities are not a guarantee of success in your business. Nonetheless, proof of your commitment to bringing your startup to new heights with good planning.

For a brighter future as a corporation, it is critical to put some effort into getting the legal formalities out of the way. The above article provides deep insight into the procedures one needs to perform legally in order to get their startup ready for a long race.

FAQs

Does a startup need to be registered?

Yes, registering a startup is one of the most essential steps to be followed while starting s startup. A startup needs to be registered with the respective government body and should also have a legally recognizable status.

There is a number of legal documents that are needed before starting a startup in India. Some of them are Trademark registration, a nondisclosure agreement, shareholders agreement, founders agreement, and some other documents as per need.

What is the founder's agreement?

A founders agreement is an agreement done between all the founders of the startup. It is done in order to have clarity of ownership, tasks, disputes, terms to apply in certain situations, etc.

Must have tools for startups - Recommended by StartupTalky

Great! Next, complete checkout for full access to StartupTalky.
Welcome back! You've successfully signed in.
You've successfully subscribed to StartupTalky.
Success! Your account is fully activated, you now have access to all content.
Success! Your billing info has been updated.
Your billing was not updated.