Startup Law: Essential Legal Tips for New Entrepreneurs

Startup Entrepreneurs Planning for Success

Proper entity formation, intellectual property rights, and contractual agreements set the foundation for growth and protect against potential liabilities. Building a comprehensive legal framework is not just necessary; it's a strategic step towards securing your startup's future success.

May 10, 2024

Starting a new business comes with countless legal considerations that can make or break your entrepreneurial dreams.

From entity formation to intellectual property protection, getting the right legal foundations in place positions you for growth and shields against liabilities.

But it also involves navigating complex regulatory frameworks and making strategic decisions early on.

1. Choose the Right Business Structure

    • Sole Proprietorship vs Partnership vs Corporation: Weigh legal separation, taxes, and governance.
    • Limited Liability Protection: Corporations and LLCs shield personal assets.
    • Tax Treatment Differences: Pass-through entities avoid double taxation.
    • Flexibility and Paperwork: More complex structures enable special allocations but add compliance burdens.
    • Industry-Specific Considerations: Some fields like finance have special entity rules.


    • Mary launched her consulting business as a simple sole proprietorship.
    • The Jones brothers formed an LLC to limit personal liability for their construction company.
    • Sasha’s tech startup needed a C-corp to bring in venture capital funding.
    • Bob and Jill’s seasonal shop made an S-corp election to avoid entity-level taxes.
    • The Nguyen family structured a holding company to own multiple restaurant properties.

How to Proceed:

    • Consult both legal and tax advisors to model different scenarios.
    • Think long-term about ownership changes and exit strategies.
    • Assess where you’ll operate to determine state filing obligations.
    • Balance setup and maintenance costs against benefits.
    • Leverage online legal services for basic structure needs.


    • What’s the simplest business entity to form? Sole proprietorships require no formal state filings but are not recommended since they provide no liability protection.
    • Can I change my legal structure later? Yes, but it may trigger tax consequences and affect contracts.
    • How much personal liability protection does an LLC provide? Significant as long as corporate veil isn’t pierced.
    • What’s the difference between an S-corp and C-corp? Mainly tax treatment and shareholder restrictions.
    • Do I need an EIN for a sole proprietorship? No, unless you have employees or meet certain IRS criteria.

2. Protect Your Intellectual Property

    • Trademarks for Branding: Secure exclusive rights to names, logos, slogans in your field.
    • Patents for Inventions: Block others from making, using or selling your innovations.
    • Copyrights for Creative Works: Protect original writings, designs, music and more.
    • Trade Secrets for Confidential Info: Shield recipes, processes, client lists from misuse.
    • Proactively Police Violations: Monitor the market and enforce your registered rights.


    • Sarah filed for trademark protection of her jewelry company name.
    • Mike’s revolutionary bike lock design was granted a utility patent.
    • Ana registered the copyright for her e-book before publishing on Amazon.
    • The Patel’s closely guarded their secret family tea blend recipe.
    • XYZ Corp actively scanned for counterfeit goods being sold online.

How to Proceed:

    • Conduct comprehensive name searches before adopting marks.
    • File for IP protections as early as possible in product development.
    • Use nondisclosure agreements before sharing trade secrets.
    • Consult IP attorneys to determine which assets can be shielded.
    • Institute IP policies, trainings and audits internally.


    • Will registering a trademark protect my brand name? Yes.
    • What can be trademarked? Any word, phrase, symbol or design distinguishing your goods/services.
    • How long do patents last? Utility patents expire 20 years from filing, design patents after 15 years.
    • Do I need to register copyrights? Not required but gives you additional enforcement rights.
    • Are non-competes enforceable to protect trade secrets? Varies by state but generally yes if reasonable in scope.

3. Put Key Agreements in Writing

    • Founder Roles & Responsibilities: Clearly outline expectations and decision-making authority.
    • Employee Documentation: Offer letters, NDAs, invention assignments, handbooks are HR musts.
    • Vendor/Supplier Deals: Negotiate MSAs with detailed SOWs, pricing and deliverables.
    • Customer Contracts & T&Cs: Set policies on orders, returns, warranties, liabilities.
    • Data Privacy Compliance: Adhere to relevant industry regs like HIPAA, GDPR.


    • A written partnership agreement defined Phil and Emma’s 50/50 ownership stakes.
    • New hire Liam signed an NDA promising not to steal secret code.
    • The SaaS startup secured its cloud hosting terms via Master Services Agreement.
    • Laura’s online shop terms limited liability for product defects and shipping delays.
    • Dr. Singh’s practice implemented HIPAA training and procedures for all staff.

How to Proceed:

    • Research employment laws and industry standards for key policies.
    • Use templates but customize to your specific business needs.
    • Have an attorney review significant deals and partnerships.
    • Implement document signing and management software.
    • Back up files securely and control access permissions.


    • What should a basic independent contractor agreement include? Scope of work, payment, IP ownership, termination.
    • Are electronic signatures legally binding? Yes, the ESIGN Act made them equivalent to handwritten ones.
    • Should employee handbooks be reviewed by a lawyer? Yes, to ensure compliance with labor regulations.
    • Do website terms of service really matter? Absolutely, they limit liability and define user obligations.
    • What’s the biggest mistake made with NDAs? Making them too broad or not getting them signed before sharing info.

4. Plan Your Funding and Exits

    • Self-Funding vs Outside Capital: Bootstrapping preserves equity but may limit growth.
    • Debt vs Equity Financing: Loans require payback, investors want ownership stake.
    • Securities Compliance: Federal/state rules govern raising money from investors.
    • Accredited vs Non-Accredited: Unregistered private placements only for wealthy individuals.
    • Mergers & Acquisitions: Navigate regulatory disclosures, antitrust and tax issues.


    • Amy used personal savings and a bank loan to open her bakery.
    • Oren’s high-growth startup gave up 20% equity for $1M in VC funding.
    • Regulation CF let Ben raise $500K via online crowdfunding campaign.
    • The biotech company raised a Series A only from millionaire doctor angels.
    • An asset purchase agreement transferred Dan’s restaurant to new buyers.

How to Proceed:

    • Align funding needs with business stage and risk tolerance.
    • Choose investors wisely – money comes with strings attached.
    • Hire experienced securities counsel for complex financings.
    • Understand your company’s valuation and dilution impacts.
    • Plan your ideal exit from the start and build towards it.


    • What legal entity is best for seeking outside investors? C-corporations provide most flexibility.
    • How much equity should I give up in my first funding round? Ideally under 25% to avoid losing control.
    • Do I need a Private Placement Memorandum? Yes for raising money from passive investors.
    • What’s the difference between an asset and stock sale? Asset sales are more common and buyer-friendly.
    • Should I consider an IPO? Only if you need massive funding and can handle the scrutiny and expense.


Navigating the legal aspects of entrepreneurship can feel overwhelming, but getting it right unlocks long-term success. Focus on key areas like business entity choice, intellectual property protection, contract best practices and capitalization strategies.

Build your advisory team early with qualified startup attorneys and don’t leave legal loose ends. A solid foundation minimizes disputes, instills investor and customer confidence, and lets you focus on growth.

Entrepreneurs analyzing business data.

But it doesn’t have to be done all at once or at great expense.

Prioritize based on your business model and scale up legal infrastructure as you hit milestones. Utilize new online legal resources for routine needs too.


The legal side of founding a startup gets ignored at your own peril. What seems unimportant early on suddenly matters immensely down the line as you grow, pivot and capitalize on opportunities.

Proactively addressing corporate, contract, employment, financing and IP issues saves you stress, money and time better spent on execution. It also increases your venture’s value in the eyes of partners, customers and eventual acquirers.

Bring in expert legal counsel to assist in more complex areas, but also educate yourself on the fundamentals. A little preventative legal care goes a long way towards realizing your entrepreneurial vision – whatever it may be.

Need Startup-Specific Legal Help?

Contact us to be connected with an experienced startup attorney. From entity formation to fundraising, contracts and M&A, we’ve got you covered.

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Contact LawInc for help with any sort of legal matter. Free attorney consultation.

Test Your Startup Law Knowledge

      • 1. What’s the main benefit of forming a corporation or LLC? A) Tax savings B) Limited personal liability C) No paperwork D) Investor appeal
      • 2. What does filing a patent application do? A) Lets you sell to the government B) Gives you exclusive rights to an invention C) Protects slogans and logos D) Copyrights your product name
      • 3. Why should you trademark your company name? A) To get a custom web domain B) To sell more products C) To prevent others from using it in your industry D) To make it easier to get a bank loan
      • 4. What’s the purpose of a non-disclosure agreement (NDA)? A) To outline job responsibilities B) To protect trade secrets C) To transfer IP ownership D) To lock in product pricing
      • 5. What should a founder agreement cover? A) Roles and equity splits B) Salaries and bonuses C) Office space and supplies D) Industry experience requirements
      • 6. What risk comes with classifying workers as independent contractors? A) Increased tax obligations B) Expensive benefit packages C) Potential lawsuits and audits D) High turnover rates
      • 7. What does an angel investor typically receive? A) Sole company ownership B) Convertible debt or equity C) Guaranteed dividends for life D) A seat on the board of directors
      • 8. Why are business plans important in fundraising? A) To qualify for government grants B) To pay less in legal fees C) To prove financial projections to investors D) To get free consulting advice
      • 9. Which legal entity can issue stock to an unlimited number of shareholders? A) Sole proprietorship B) General partnership C) LLC D) C-corporation
      • 10. What’s the main drawback of a sole proprietorship? A) Unlimited personal liability B) Required to have a partner C) Can’t hire employees D) Must pay corporate taxes
      • 11. What does a registered trademark symbol (®) mean? A) Common law rights B) Approved by the USPTO C) Unregistered brand name D) International protection
      • 12. How long does copyright protection last? A) 20 years from creation B) Author’s life plus 50 years C) Author’s life plus 70 years D) 100 years from publication
      • 13. What should terms of service include for a mobile app? A) Pricing and in-app purchases B) Acceptable use and content policies C) Device compatibility and updates D) All of the above
      • 14. What’s required to legally hire your first employee? A) Obtain an EIN B) Register with state agencies C) Set up records and insurance D) All of the above
      • 15. What does an accredited investor need to verify? A) College degree B) Business acumen C) Income or net worth D) Referral from a major bank
      • 16. What’s a benefit of keeping IP assignment as a contractor? A) Owning the work product B) Higher pay rate C) No need for NDAs D) Potential partial ownership later
      • 17. How do you protect a mobile app idea? A) Patent the underlying process B) Trademark the icon and name C) Copyright the code D) All of the above
      • 18. What should a privacy policy disclose? A) Data collection and usage B) Revenue and profit details C) Employee home addresses D) Pending lawsuits and audits
      • 19. What’s required in all 50 states for new hires? A) Non-compete agreement B) Invention assignment C) I-9 form completion D) College transcripts
      • 20. Why is an operating agreement important for multi-member LLCs? A) To limit personal liability B) To assign ownership percentages C) To open a bank account D) To raise outside funding
      • 21. What does “piercing the corporate veil” mean? A) Dissolving the company B) Holding owners personally liable C) Issuing public stock D) Appointing a new board
      • 22. What legal document should a startup use for a friends and family round? A) PPM B) SAFE C) KISS D) IPO
      • 23. What’s typically included in an advisor agreement? A) Equity grants B) Cash payments C) Specific deliverables D) All of the above
      • 24. What’s a common mistake with unpaid interns? A) Not providing housing B) Treating them like employees C) Giving them equity D) Requiring NDAs
      • 25. What should a business partnership agreement outline? A) Capital contributions B) Dispute resolution C) Dissolution terms D) All of the above
      • 26. What’s a key difference between S-corps and C-corps? A) Limited liability protection B) Taxation method C) Trademark eligibility D) Nonprofit status option
      • 27. What legal protection applies to a company logo? A) Patent B) Copyright C) Trademark D) Trade secret
      • 28. What’s the most common exit strategy for startups? A) IPO B) Acquisition C) Shutdown D) ESOP
      • 29. What does a convertible note allow? A) Debt to equity conversion B) Equity to debt conversion C) Stock to options conversion D) Automatic loan extensions
      • 30. What’s a typical vesting schedule for startup founders? A) 6 months B) 1 year C) 4 years D) 10 years
      • 31. What does the DMCA provide? A) Trademark registration B) Copyright duration C) Safe harbor for service providers D) Software patent process
      • 32. What’s a benefit of being a public benefit corporation (PBC)? A) Tax-exempt status B) Increased liability protection C) Ability to prioritize social mission D) Looser securities regulations
      • 33. What’s the biggest legal mistake a startup can make? A) Not forming an entity B) Hiring too fast C) Pivoting the business model D) Giving away equity too easily
      • 34. What does an 83(b) election allow? A) Tax deferral on equity B) Accelerated vesting C) Preferential stock transfer D) Delayed tax payments on options
      • 35. What’s a key legal consideration in an M&A deal? A) Due diligence B) Antitrust review C) Employee layoffs D) All of the above
      • 36. What should a website privacy policy address? A) Data collection and usage B) Employee background checks C) Advertising budget D) Refund procedures
      • 37. What’s a common legal issue with unpaid interns? A) Intellectual property ownership B) Non-compete agreements C) Minimum wage violations D) Severance packages
      • 38. What does directors and officers (D&O) insurance cover? A) Product liability B) Injuries on company property C) Employee discrimination claims D) Breach of fiduciary duty lawsuits
      • 39. What’s a benefit of filing a provisional patent application? A) Quicker approval timeline B) Permanent patent protection C) Lower filing fees D) One-year “patent pending” status
      • 40. What legal rights do minority shareholders typically have? A) Elect the board of directors B) Veto major business decisions C) Access corporate records D) Force a company sale

    • Answers:
          • 1: B) Limited personal liability
          • 2: B) Gives you exclusive rights to an invention
          • 3: C) To prevent others from using it in your industry
          • 4: B) To protect trade secrets
          • 5: A) Roles and equity splits
          • 6: C) Potential lawsuits and audits
          • 7: B) Convertible debt or equity
          • 8: C) To prove financial projections to investors
          • 9: D) C-corporation
          • 10: A) Unlimited personal liability
          • 11: B) Approved by the USPTO
          • 12: C) Author’s life plus 70 years
          • 13: D) All of the above
          • 14: D) All of the above
          • 15: C) Income or net worth
          • 16: A) Owning the work product
          • 17: A) Patent the underlying process
          • 18: A) Data collection and usage
          • 19: C) I-9 form completion
          • 20: B) To assign ownership percentages
          • 21: B) Holding owners personally liable
          • 22: B) SAFE
          • 23: D) All of the above
          • 24: B) Treating them like employees
          • 25: D) All of the above
          • 26: B) Taxation method
          • 27: C) Trademark
          • 28: B) Acquisition
          • 29: A) Debt to equity conversion
          • 30: C) 4 years
          • 31: C) Safe harbor for service providers
          • 32: C) Ability to prioritize social mission
          • 33: A) Not forming an entity
          • 34: A) Tax deferral on equity
          • 35: D) All of the above
          • 36: A) Data collection and usage
          • 37: C) Minimum wage violations
          • 38: D) Breach of fiduciary duty lawsuits
          • 39: D) One-year “patent pending” status
          • 40: C) Access corporate records

Also See

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