New Business Startup Toolkit

Starting a company is hard work. Making sure it is successful is even harder. While the founders of a startup are typically focused on raising capital and developing and marketing their products, they must take into account the legal requirements and considerations that come with operating a business and employing people. Failure to do so can result in significant liability for the company and its founders that may end the venture before it even begins.

This toolkit contains resources to support a new startup through company formation and early-stage development, providing a checklist with guidance, best practices, case studies, and sample form documents to help entrepreneurs navigate the legal complexities of the startup world. The information in this toolkit is general in nature and should not be a substitute for competent legal counsel. Contact Carpenter Wellington for professional support with the use of this toolkit.

1. Pre-Company Formation.

Starting a new business is a major decision that must be carefully planned from a business and legal perspective. While many startups fail because of commercial or business reasons, many also fail for insufficient attention to legal requirements and related best practices before the company is even formed. Startup companies should consider the following checklist before they make significant investments or take formal steps to kick off a new business venture:

  • Develop Business Plan. The founders should clearly define the company’s objectives in a concise, dynamic business plan to better communicate these objectives to key stakeholders such as lenders, investors, customers, and suppliers. Additional resources on this topic:

  • Review for Conflicts. Startup company founders should review their prior relationships and activities for surviving obligations and restrictions that may limit their freedom to conduct business with the new start-up company. It’s highly advisable to review prior contracts for surviving non-disclosure, non-solicitation, non-compete covenants or similar restrictions, to assess the risks presented by such restrictions, and to develop plans to manage compliance. Additional resources on this topic:

  • Select a Legal Structure and State of Organization. Choose the type of legal entity and the state of organization that best support achievement of the company's and founders' goals from legal, tax, and early-stage investment perspectives. Additional resources on this topic:

  • Select a Company Name. The company name should be “legally cleared” before it is finally selected. Ensure that it is available and that it does not infringe on a third party’s intellectual property rights by performing extensive database and internet searches. Protect the selected name by making appropriate registrations. Additional resources on this topic:

    • CW Blog: Selecting a Company Name

  • Select a Business Location. Consider business and legal factors when choosing a business location. Costs of operation, real estate, taxes, proximity to customers, local laws and regulations, and availability of employees are a few of the things to consider.

    • Formal Company Registration. Once the foregoing checklist is completed to satisfaction, the company can be formally created and registered in accordance with the legal requirements of the state of organization. In most states, the company must file certain documents with the secretary of state. Additional resources on this topic:

    • CW Blog: Registering an LLC in Washington State

    • CW Blog: Registering your Business in the “Foreign” Jurisdictions of Delaware & Wyomin

 

 

2. Insurance, Licensing, and Regulatory Compliance.

Before the company can begin operating, it must ensure compliance with insurance and licensing requirements, as well as compliance with any industry-specific regulations that may apply to its business. Startup companies should consider the following checklist to check their compliance and protect their business:

  • Evaluate Insurance Needs. In most jurisdictions, businesses are required to have worker’s compensation insurance. Startups must determine the statutory requirements applicable to their business. In addition to meeting legal requirements, businesses should have expanded insurance to ensure protection during a vulnerable period of growth and development. When considering the type and amount of insurance coverage to buy, companies must assess the nature of the activities of the company and its employees and contractors as well as its exposure to customers and suppliers. Additional resources on this topic:

    • CW Blog: Common Types of Business Insurance

  • Registrations, Business Licenses, Permits, and Taxes. The company must ensure compliance with federal, state, and local requirements to register, obtain licenses and permits to operate, and pay applicable taxes. Additional resources on this topic:

    • CW Blog: Business Licenses and Permits

  • Regulatory Compliance. The type of business activity that the company is engaged in may be regulated by federal, state, or local authorities and may require additional licensing and/or compliance with specific laws and regulations. For example, companies that process personal data may be subject to data privacy laws. Additional resources on this topic:

 

3. Shareholders and Owners (Ryan)

4. Intellectual Property.  

Startup companies, especially those whose core business depends on intellectual property (IP), must dedicate appropriate time and resources to acquire, manage, and protect their IP. Clear ownership and protection of IP rights is essential to attract investors and avoid costly infringement battles in the future. Entrepreneurs with startup companies should consider the following in relation to their intellectual property:

  • Acquiring, Managing, and Protecting IP. A startup business, particularly one whose core business is dependent on intellectual property, must devise a comprehensive IP strategy and take specific actions to ensure that it has and retains essential IP rights. The strategy should cover the acquisition and management of IP while anticipating business growth and expansion. Additional resources on this topic:

    • CW Blog: Acquiring and Managing Intellectual Property

    • CW Blog: IP Checklist for Startup Companies

  • Branding and Brand Protection. Branding may seem like pure business topic on the surface, but there are multiple legal implications that a startup business must consider to effectively manage risks of infringement and prevent misuse or misappropriation.  Additional resources on this topic:

    • CW Blog: Branding and Brand Protection

 

5. Funding (Ryan)

 

6. Strategic Development (Ryan)

 

7. Employees and Independent Contractors(Ryan)

 

8. Contracts.


Written contracts are essential tools to manage risk when engaging with third parties. A startup should take steps to ensure that all third-party relationships are documented in writing, and should strictly prohibit verbal agreements with customers, suppliers, employees, and even with friends and existing business contacts. The company should consider developing key form agreements for core business activities early in the company's life cycle, such as the sample contracts provided below. Any sample form agreements are solely provided as references and should be thoroughly vetted for use. Contact CW for support with the use of contract templates.

  • Confidentiality Agreements. Confidentiality agreements, also referred to as nondisclosure agreements or NDA’s, are powerful tools to protect confidential and proprietary information from improper use and disclosure by third parties. It is good practice to always sign an NDA with third parties prior to the commencement of business discussions to ensure that sensitive information is protected. Additional resources on this topic:

  • Employment Agreements. If the startup company hires full-time W2 employees, it should put in place an employment agreement with each employee to govern the relationship and protect the company’s interests. The employment agreement should include work product assignment and confidentiality terms to secure the company’s rights in inventions and work output and to protect its trade secrets and other sensitive information from dissemination to competitors and other third parties. Further protections for the company may include non-solicitation and non-compete obligations to the extent allowed by law, as well as mandatory arbitration agreements. Additional resources on this topic:

    • Sample Form Employment Agreement [RYAN TO PROVIDE]

  • Independent Contractor Agreements. If the company hires resources on a temporary contract basis, it should document the nature of the relationship, the specific duties and obligations of the contractor, and the consideration paid by the company in concise, written terms. Similar to an employment agreement, the contractor agreement should include work product assignment and confidentiality terms. However, as a contractor relationship is purely based on contract, additional terms are typically included. For example, the company may require the contractor to provide warranties on his or her performance or to indemnify the company for losses resulting from the contractor’s breach or misconduct. Additional resources on this topic:

    • Sample Form Contractor Agreement

  • Customer Agreements. As with all third-party relationships, customer engagements should be governed by written agreements that clearly and concisely set forth the rights and obligations of the parties. Too often, startup companies do not develop standard form customer agreements, and go on to accept one-sided terms and conditions proposed in contracts with more established customers that expose the startup company to undue risk. Startups should not assume that they have to accept such terms, and instead should dedicate efforts to negotiate by allocating the risk of non-performance to the counterparty through indemnification, exclusive remedies, limitations on liability, and warranty provisions. Additional resources on this topic:

    • CW Blog: MSA Negotiations: Considerations for Service Providers

    • Sample Form Customer Master Services Agreement

  • Supplier Agreements. Similar to customer relationships, relationships with suppliers should be documented in a written agreement that clearly and concisely sets forth the rights and obligations of the parties and that protects the specific business interests of each party. As with customer agreements, a startup should dedicate time to develop a favorable standard form supplier agreement and negotiate supplier templates to re-allocate the risk of non-performance to the supplier through indemnification, exclusive remedies, limitations on liability, and warranty provisions.

    • Sample Form Supplier Master Services Agreement

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