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Most young entrepreneurs seem to be in a hurry in today’s fast moving “high tech world” to create the next “Google” or “Facebook” and as a result ignore the key legal requirements involved in a start up phase.
Proper Legal Risk Management Strategies especially at the start up phase can go a long way in preventing legal assaults, protracted law suits, mitigating legal risks, and thereby leading to a smooth sailing resulting in a timely transition to the next phase.
Ignoring the legalities involved in various aspects of a start up can have far reaching legal consequences further down the line which can cost valuable time and drain one’s financial resources through legal fees, court battle, uncertainty, loss of precious time and goodwill.
Choosing a name – This can be a tricky issue and not enough time is usually spent on deciding the name due to time constraints which can have far reaching legal implications. Make a diligent search through various online and offline sources to make sure you are not using an identical or closely similar existing name, keeping in mind the nature of the “ border-less world” and today since the world is the marketplace, legal threats can emanate from any part of the globe.
Avoid trademark infringement. Do not choose a name or a mark that causes a likelihood of confusion with another existing person or company. For example, using “McFries” can invite a legal action from McDonald’s.
Thus ignoring the legalities in selecting a name for your start up can result in significant legal and administrative costs and can eventually lead to a forceful name change due to legal action.
Choosing a Business Structure or Entity – One of the most crucial decisions to be made during a start up phase is the type of legal structure or business entity you select for your venture. This will have an impact on personal liability of members, tax structure, statutory legal documents to be maintained, and the ability to raise funds from Venture Capitalists or Angel Investors.
Some of the most common forms of business entities are Sole Proprietorship, Partnership, Corporation, Limited Liability Company, (LLC), and Limited Liability Partnership (LLP).
The LLC and LLP have been gaining popularity as a business entity throughout the world since it combines the advantages and benefits of both a Corporation and Partnership and provides limited liability to its owners by protecting its owners from personal liability unlike in a Sole Proprietorship.
So what’s our take?
Well, under the “traditional partnership firm,” every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he/she is a partner.
Under LLP structure, liability of the partner is limited to his agreed contribution. Furthermore, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.
So give the LLP/LLC business entity a shot!!
Keep reading our blogs to avoid legal pitfalls and have a smooth sailing in the highly litigious borderless world!
Look out for our blog on Business Website Legal Compliance and Documentation.
