What should you do before starting a company?
Takeaway: Be sure to review your employment and IP agreements with your current or most recent employer to avoid IP ownership issues and be mindful of the right time to establish an entity for your business.
Launching a startup is an exciting and life-changing decision. However, it's crucial for founders to be aware of the legal considerations involved to avoid potential pitfalls and ensure a smooth transition. Here we will discuss the legal aspects startup founders should consider before embarking on their entrepreneurial journey.
Review employment contracts and agreements
Before leaving your job, thoroughly review your most recent employment contract and any non-compete, non-disclosure, or non-solicitation agreements you may have signed. Non-solicitation agreements are contracts that prevent you from soliciting anyone related to your existing employer (e.g., employees and customers). Non-competition agreements are contracts that prevent employees from starting a similar business or working for a competitor for a certain period after leaving the company. These agreements can limit your ability to compete in the same industry and may prevent you from starting a new company. Some states either limit non-competition restrictions (e.g., New York) or ban them altogether (e.g., California). Be aware of any restrictions on working with competitors, starting a similar business, or soliciting clients or colleagues after leaving your job. Violating these agreements could result in legal consequences and jeopardize your startup's future.
Protect your intellectual property
If you developed any ideas or inventions related to your startup while employed, it's essential to determine who owns the intellectual property rights. Your employer might claim ownership of your work, especially if it's related to your job duties or if you used company resources. You must ensure that your new company is not infringing on any patents or trademarks held by your previous employer, and that you have the proper permissions to use any intellectual property you may have developed while working for your previous employer. Some states (including California) have laws permitting employees to create intellectual property on their own time, which is not automatically owned by their employer. Consult with a legal professional to ensure you have the rights to your intellectual property and take necessary steps to protect it.
Establish a legal entity
Forming a legal entity for your startup, such as a corporation, is crucial to protect your personal assets from potential liabilities and comply with regulations. Consult with a legal professional to determine the most appropriate legal structure for your business and ensure that all necessary paperwork is filed correctly.
Confidentiality and data protection
Ensure that you don't use or disclose any confidential information from your former employer when starting your business. This includes customer lists, trade secrets, and proprietary software or technology. Misusing confidential information can lead to legal disputes and damage your startup's reputation. If you plan to use any confidential information or trade secrets from your previous employer, you need to seek legal advice to ensure that you're not in violation of any confidentiality agreements.
Employment laws and regulations
As you build your team, be aware of employment laws and regulations, such as minimum wage requirements, employee benefits, and anti-discrimination laws. Ensure that your startup complies with all applicable regulations to avoid legal issues and potential fines.
Seek legal advice
Navigating the legal landscape as a startup founder can be complex and challenging. It's wise to consult with legal professionals specializing in startups and entrepreneurship to ensure you're well-informed and prepared to address any potential legal concerns.
Conclusion
Being aware of the legal considerations before leaving your job to start a business is crucial for a successful transition and the future of your startup. By reviewing contracts, protecting intellectual property, establishing a legal entity, and seeking professional advice, you can lay the foundation for a thriving and legally compliant business.