Three Legal Things to Note as a Startup

By Lily Hutchinson, 3L —

Reflecting on my semester in the Startup Practicum, these are the three legal things that I think startups should note.

  • Search for Trademark Protectable Name…Before Branding

Trademark protection is extremely important to any business. It guarantees exclusive rights to a name or logo that is associated with the specific good. Many businesses pick a product or business name on the onset because they just like it, however – this can be a premature move as there may another business that uses a similar name with a similar good. This means that they may not only be rejected for trademark protection, but also may be liable for infringement. Therefore, companies should do a premature search on the website before picking their name or logo as it will save them time, money and future litigation.

  • B Corp & Benefit Corporations Considerations

Some Start Ups would like to be registered as s B Corp Certified or Benefit Corporation for the appearance of corporate responsibility and social awareness. However, this may give a positive appearance of the new company but could also have a negative impact to its growth through funding. Both options require amendments to governing corporate documents to include prioritization of stakeholders which is anyone who is affected by the actions of the company, such as employees or members of the community, over the shareholders’ interests. This organizational structure can be unappealing to investors and venture capitalists as their primary goal is to receive a return on their investors. These options may limit your main source of funding to family and friends or kick starters. Therefore, companies may want to wait before transitioning to a B Corp or Benefit Corporation until they have a certain level of funding secured.

  • Take Extensive Time & Consideration Before Writing Corporate Documents

Some founders feel security by quickly drafting up Corporate Documents, such as Partnership Agreements or By-laws. However, sometimes this hasty tactic can have an extremely negative impact on the business if the members or partners end up on a different page with the projection of the company or with the performance of other members/partners. For example: if two partners decide to split the equity and voting power, fifty-fifty, and there is an important corporate decision to make and the by-laws require majority voting – neither partner will be able to force a conclusion and the company will be at a standstill. Also, if a partner is not performing to certain expectations or not performing at all – this partner may still be entitled to his share of the Company. Therefore, individuals should consider the various options or agreements that could be made for equity and voting within the business.

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