Industry & Money

Corporate Structure and Legal Matters

Entrepreneurs face many legal challenges when starting a business. From writing a business plan, to determining which corporate structure is best and scraping together enough money to file the appropriate documents.

Legal issues represent only some of the many problems facing entrepreneurs and start-up companies. If thought about at all, they often get pushed far down the list of pressing worries, behind revenue, overhead, marketing, etc. Of course, that is assuming a young company is even aware of the legal issues surrounding its business. Those legal problems that go undetected or ignored can ultimately be the most devastating.

Brownstein Nguyen & Little LLP, a law firm, points out some of the common legal issues facing growing companies, and offers suggestions on how to economically protect your business investment through the practical use of attorneys.

Often, new ventures take the shape of ordinary corporations, either as small-business or Limited Liability Company. Other businesses may begin either as a general partnership or a Limited Liability Partnership.

However, most business owners ignore the on-going legal requirements to maintain their corporation or other business entity. Understandably, most entrepreneurs are too concerned with business to hold and record annual shareholder, director and partner meetings and elections of officers. Corporate resolutions concerning significant business events such as financing, major equipment leases, licensing agreements, key employee compensation agreements and the like are usually ignored.

Most importantly, shareholders in closely held corporations frequently fail to create shareholder agreements, sometimes referred to as “buy-sell” agreements. Such agreements can prevent extremely lengthy and costly fights when a business relationship ends.

At best, this typical lack of attention to your corporation or partnership results in incomplete or poor records. At worst, it can end with the loss of limited personal liability to you and lead to terrible disputes over control of the business itself.

To avoid this danger, it is advisable to allow an attorney review your corporate records once a year. All major business transactions and events can be properly recorded and approved, and the chance for later objections will be greatly reduced. Previous problems with record keeping can be corrected as well.

Employment Issues

Almost every company has employees, but few companies worry about employment issues until they have already developed. For example, most firms use (and should use) non-compete, non-disclosure and invention assignment agreements to protect their technology. If your company does not, you are truly hurting your ability to compete in the marketplace.

On the less obvious side of things, what about old-fashioned employment agreements which cover topics such as compensation, benefits, leave policies, termination, taxes (especially important for independent contractors) and other issues? Often, a firm’s employees are equally as valuable as its technology assets. It does make sense therefore to clarify your employees’ relationships with the company. An experienced attorney should be able to review your employment agreements, policies and/or handbook and offer practical legal advice on how to prevent future employment problems.

Employment agreements are area where you can save money. Have an attorney draft one agreement for use with all similarly-situated employees. That same form may be used for each employee that you hire under the same criteria. Then, if you need to modify the agreement to reflect discrete changes between employees, those modifications should be easy for your attorney to make.

Intellectual Property

There is a great advantage from having an Intellectual Property (IP) ‘audit’, and chances are good that your company could benefit it. In an IP audit, your company’s intellectual property assets and rights are reviewed by an attorney to determine if they are adequately protected under applicable law.

An audit might reveal that you are relying upon unregistered trademarks or service marks. Your license to use (and/or package) certain technology important to your services or products may have expired or need re-negotiating. Your patents may be neither as broad nor as strong as you thought. Your employees might be divulging trade secrets to competitors and customers without even realizing it. An attorney’s review of your company’s technology might even identify intellectual property assets you didn’t know you had.

Intellectual property audits can be as easy as an interview with your attorney, followed by her simple review of applicable documents such as licenses, non-disclosure and third-party agreements.

The attorney may then write a report or letter of recommendation to the company identifying weaknesses and problem areas. Of course, if your company holds patents or is engaged in heavy research and development, the process will be more involved and would likely necessitate consultation with a qualified patent attorney.

Many business owners avoid using lawyers for fear of outrageous legal bills and losing decision-making control. However, both problems can be controlled up front. Remember, you are the consumer and your attorney should tailor her services to meet your needs. If you use your attorney wisely and at the right time; before you make an important decision or sign on the dotted line, your business will see the benefits.

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