There are many mistakes commonly made by startups business owners and many of those mistakes are based on the corporate law. We are witnesses to plenty of legal mistakes made by unskilled entrepreneurs and young startup companies. Some of the most common and greatly problematic mistakes regarding the corporate law are definitely among the main reasons for startups businesses high failure rate.
The Most Problematic Legal Mistakes
One of the main legal problems is definitely not making a clear deal with business co-founders. You have a duty to absolutely agree on every aspect with your co-founders. If you don't do so, it can cause major problems like those Facebook litigations. In order to avoid these problems, you have to think about your founder agreement as a kind of prenuptial agreement. Some of the key terms of these agreements that you need to address are questions like who gets what percentage of the business, is the percentage of ownership entirely subject to vesting based on that continued participation, what are certain responsibilities and roles of the founders included, how much commitment is expected and similar questions. Before you embark on this adventure, you have to obtain all these answers in order to avoid legal problems.
Start Your Business as Corporation or LCC
Another greatly problematic legal problem when starting your startup business is definitely if you fail to start your business as LCC or corporations. This is one of the first legal decisions you have to make regarding form of your business. There are many founders who failed to discuss these important legal terms with their lawyer. As a result they had to pay higher taxes as subjects to significant liabilities which could have been avoided if they had paid attention at the very beginning. Start your business as Limited Liability Company or LLC or as a corporation in order to avoid high taxes and other legal issues. There are some business forms currently offered for startups like sole proprietary that requires no legal documents, fillings or any fess.
You only have to obtain local and state business permit. On the other hand, any additional capital requires a new investor. You also have an option to start general partnership which is a legal form of an entity when all partners agree on a certain set of rules before going into business. There is also an option to start your business as C Corporation and S Corporation which are both formed under certain state laws included in the corporate law. It should be noted that most venture capital companies are in fact C corporations. On the other hand S corporations have no more than hundred stakeholders being regulated under state and federal laws. You also have an option to register your business as LCC which is formed under state law as a unique and hybrid form of limited partnership and corporation having specific tax advantages over those C corporations. The last option is to go with a limited partnership formed under state law.
Come up With Great Contract Form
In order to avoid any legal issues, you have to come up with a great contract form regarding your clients and investors. It should be noted that there is no any standard form of contract and you will tailor every contract based on certain client and customer. The best is to begin working on your contact form and just hope that the other side will not negotiate much. In order to create a good contract form, first, gather some samples of contracts which are already made in the industry since there is no any need to completely re-invent a contract form. Also, make sure that you hired an experienced layer who will be doing all the drafting. The last thing, pay attention to the length of the contract since it would be ridiculous to make it so long that it will bore the other side.
Comply with Security Laws when Issuing Stock
Another very important thing in order to avoid various legal problems is to entirely comply with security laws when you are issuing a stock to your family, friends, investors, angels, etc. If you register your business as a LLC or corporation in the near future it will become a subject to both state laws and federal laws. It should be noted that complying to security laws is required before selling shares.. If you fail with these requirements it commonly may lead to various financial penalties. Some of the penalties include repurchasing all of the previously purchased shares at that original insurance price, even in the case when the business has lost most of them. In order to avoid this, make sure that you comply with all security laws before issuing a stock.
Getting US Visa
If you are a non-US citizen and you want to start your own startup business in the United States, you have several options in order to obtain US visa. Moving to the United States is way expensive, so it is the best way to obtain a temporary visa including different options like business visa B1 or tourist visa B2. The ninety-day policy may serve you just fine until your business start to grow. There are also B1 and a B2 visa allowing you to stay in the United States for up to six months and during that time you may access various conferences, talk to potential customers and pretty much everything else in order to lead your business towards success. You also have an option to go with student and internship visas. If you have enough money to pay bills and to pay your employees, you may obtain H-1B or temporary worker visa, L-1A or international workers visa and Q-1 or individuals with extraordinary abilities visa.