Startups founders face many significant challenges within their first year of operation. From developing a business model to hiring experienced staff, entrepreneurs are often over-worked and prone to mistakes during this period which can develop into costly business litigation further down the road. Below, the Business Group, Catanese Law’s business litigation team, will share the most common business litigation mistakes startups make and what steps startups can take to avoid future litigation.
Not Documenting Original Deal with Co-Founders
When first starting a company, it is easy for things to get put off or lost in the hectic shuffle. However, it is crucial to take a breath with your fellow co-founders and agree on the details surrounding your business and business relationships. If this task is not completed, it can lead to serious legal problems in your company’s future when one partner decides to leave or take your company public. When creating your founders’ agreement, you and your partners are encouraged to address:
– How will the equity be split among founders?
– What are the responsibilities of each founder?
– If one founder decides to leave, do the remaining founders have the right to buy back the leaving founder’s shares, and at what price?
Not Properly Organizing and Maintaining Tax Documents
One of the most severe mistakes startup companies can make is not properly organizing and maintaining important tax documents. When startup companies are first being built, oftentimes, staff will wear multiple hats and perform multiple roles. While this may save the company much-needed funds, it can also cause issues come tax season. Be sure to hire a CFO to ensure that all quarterly taxes are paid, and all company expenses are tracked.
Not Checking For Existing Trademarks When Choosing a Company Name or Domain Site
When choosing a company name, it is crucial to thoroughly research the potential name to avoid trademark infringement or domain name issues. If this step is skipped, you run the risk of infringing on another company’s trademark and potentially creating confusion for both companies’ customer bases. In order to avoid future business litigation and copyright infringement, startups are encouraged to take the following steps:
- Use U.S. Patent and Trademark Office site for federal trademark registrations to search for your startup’s potential name
- Use Google to conduct an initial search of the name and see if other companies may already be using the same name.
- Search through the Secretary of State corporate or LLC records in your state to see if there is any company within your state that is currently using the same name.