What To Know When Forming Your Startup
Any startup founder knows the hard work and determination that go into building a successful business. Without addressing key legal considerations, however, that work can be at risk.
I am attorney Seth H. Salinger. In my work with startups across the Greater Boston area, I prioritize the issue of business formation. A handshake — even between the best of friends — is not enough when forming the backbone of your business. Well-crafted documents, planning and clarity are key to sustaining the growth of your venture.
Five Things To Consider In Partnership Agreements, Operating Agreements And Bylaws
Any person or group of people forming a partnership, limited liability company (LLC), C corporation or S corporation should have or consider the following items in place with their partnership agreement, operating agreement or bylaws:
- A plan for dispute resolution and separation. Failure to address this vital issue is an invitation to litigation. What happens if the members do not agree or someone wants to leave or join the business?
- A clear statement of asset ownership. If one member joins the company already owning patents or copyrights vital to the business goal, how will the asset be treated? A purchase? An assignment? A royalty-free license? If three of four partners make capital contributions and one contributes sweat equity only or payment-in-kind, how will that contribution be valued for purposes of determining the division of ownership?
- A tool kit of critical contracts. Employment contracts, client services contracts, subcontractor agreements, joint venture agreements and nondisclosure agreements are some of the basics. The right contracts with the right touch can propel the success of the venture.
- The right insurance policy. Insurance needs depend on the products or services offered. Having the right policy in place can save a business from catastrophes, including the ones you think couldn’t possibly happen to you: allegations of negligence, premises liability insurance, sexual harassment policies, officer and director policies, advertising injuries, and more.
- A financial adviser. Your business should have an independent financial adviser to help minimize tax liability and maximize economic growth.