When done correctly, launching a Startup can be an exciting and satisfying endeavor. However, when done incorrectly it can be a nightmare Law tuition.
Unfortunately in an effort to get the business off the ground, many new founders overlook the importance of legally protecting themselves and their business. For this reason, at Legal Solutions Panama we offer you these five important legal tips for Startups.
Legal advice for startups
Establish a company
Many founders overlook the need to legally incorporate their company. There are many benefits to establishing a company, among the most common we can mention:
Protection of personal assets. Incorporating a company offers founders protection of their personal assets by limiting their personal liability for the company’s debts and legal obligations to the amounts the founders have invested in the company. Regardless of the type of Company that is decided to be established (Limited Liability Company or Limited Liability Company).
Brand protection. In most states, a business cannot register or use the same trade name that another business already owns. Therefore, establishing a company protects your brand by preventing competitors from using that same name and/or brand. Also, adding “Inc.” or “LLC” to your company name can give your business an added sense of credibility when dealing with investors, suppliers and customers.
When an entrepreneur does not register a company and what he or she owns is individual ownership of an idea in progress, once the owner dies, the company or community dissolves. However, if a company has been legally incorporated, the company will continue to exist, even if ownership changes.
Aside from protecting personal assets, potential tax savings is one of the main advantages of starting a business. You should consult with your accountant to determine which corporate structure is most advantageous for your business, but in general, there are tax benefits to incorporating.
Obtain an operating agreement
Many entrepreneurs begin their journey without having signed an Operating Agreement before starting the business. The fact of not having this document is, in many cases, a point of conflict between the founders or initial shareholders. An operating agreement is a written document that outlines the rights, responsibilities and contributions of the business owners and generally describes how the business will be managed. A properly drafted operating agreement negotiated in advance between the owners can save the owners from a host of problems, headaches and expenses and, in some cases, can even save the company.
Although each operating agreement is different, there are common points that we have identified and must be present in it:
The percentage of ownership granted to each owner.
The distribution of profits and losses, specifically how they will be distributed.
Who can bind the company.
How decisions are made on behalf of the company.
What happens in the event of death, incompetence or desire to leave the company by one of the owners.
What happens when an additional owner is added.
How disputes relating to the operation of the company will be resolved.
Prepare independent contractor agreements (freelancers)
In today’s world, many startups hire independent contractors (freelancers) to help them start their business instead of employees. When doing so, it is important to distinguish between hiring someone as an employee or as a freelancer. In the case of employees, the company has to ensure that it complies with a host of labor and employment law issues. In addition to initially creating more costs for the company, employees can also expose the company to liability if someone sues the company for an act performed by the employee in the course of their employment.
In the beginning, hiring independent contractors (freelance) is usually less expensive and less burdensome, since none of the issues mentioned above apply. That said, when hiring independent contractors, it is important that the company utilize them appropriately and define the relationship in writing before work begins. When preparing an independent contractor or freelance agreement, there are some points that we cannot forget to include:
Always include the phrase “Work for hire.” To own the copyright in any work an independent contractor does on behalf of the company, the agreement must specify that it is “work for hire.” Doing this makes the company the “author” for copyright purposes, rather than the contractor. Excluding this from the agreement puts the company at risk for not owning the work completed by the contractor.
The magic is in the details. Making the agreement as detailed as possible eliminates confusion regarding the responsibilities of both parties. The agreement must be specific as to the deadlines for completion of the work and must include a schedule and terms of when and how the contractor will be paid.
Mention that the contractor is not an employee. The agreement should explicitly state that the independent contractor is an independent contractor, not an employee. Related provisions should state that the contractor must pay their own taxes, obtain their own insurance, and are free to work for others.
Register the trademark: the name and logo of the company
A trademark is defined as a word, phrase, logo, or other graphic symbol used by a company to distinguish its product or service from those of others. A word does not have to be unique to receive a trademark. It simply must be identifiable for trademark purposes. Once the trademark is registered, others are prevented from copying it.
A trademark can be registered before it is actually used, and it is beneficial to do so because:
prevents another person from registering the trademark;
prevents the company from accidentally infringing another entity’s trademark;
strengthens the company’s position should a trademark infringement issue arise.
Hire a lawyer
Finding and hiring a trusted attorney to help you navigate the advice outlined above and any other legal issues or headaches you encounter along the way is a must. Let us remember that at the end of the road it will always be less expensive to hire a legal expert beforehand than to hire him when there is already a problem.
Furthermore, today there are new companies such as Legal Solutions Panama that have a group of lawyers who are experts in each subject and capable of working together when it comes to projects that involve the participation of different expert lawyers.