There are a number of important considerations that should be mulled over before incorporating your startup. We often receive enquiries from clients asking what they should be doing before they incorporate their business, and it’s an important question that deserves some clarification. Here are some of the things you will need to consider before incorporating your startup:
Before incorporating your startup, consider how you plan on managing your commercial relationship with the other co-founders. You might have a chummy friendship with your business partner, but from a legal perspective, it is better practice to anticipate the worst-case scenario, or at least make plans accordingly. Protecting your equity in the business if there is a falling out, or for some other reason the partnership breaks down (divorce, illness, death, etc), is extremely important.
A contract lawyer should draft a Shareholders Agreement and a Buy-Sell Agreement to ensure each respective party’s interests are being protected during the transition before incorporating your startup.
2. Intellectual Property
Intellectual property might be one of your business’ most valuable assets, particularly if your business is experiencing rapid growth in your industry. Intellectual property should be protected so that employees and contractors that you will eventually be working side by side will not try to use the business’ intellectual property to serve their own commercial purposes. This means an intellectual property lawyer may need to insert a clause in the Employment Agreement or Contractors Contract that, to the greatest extent permitted by the law, retains all intellectual property rights and owns all intellectual property created by employees or contractors ‘in the course of employment’. The clause operates by requiring all intellectual property created to be assigned to the employer, which also applies to interns and volunteers.
Investment might be your priority as a startup. To secure investment, it is easier to offer equity in the company. This can be more easily done as a company so that you are able to sell shares in the business, whether these are preference shares or ordinary shares.
4. Sole trader
If you were operating as a sole trader and are now incorporating your startup, you should know that, under a company business structure, the personal assets of the founder or ‘director’ would be at more risk.
5. Research and Development
There are a number of valuable research and development grants available for companies looking to expand and this can assist you with any cash flow constraints that you may experience before incorporating your startup.
6. Legal obligations
Have you done your research into the directors’ duties and legal obligations and requirements of being a director? These rules are quite strict and compliance is extremely important, as ignorance is no defence in the Courts. Do your homework so that you’re not caught out inadvertently breaching your duties. Speak with a business lawyer if you need more advice.
There are numerous considerations before incorporating your startup, both legal and practical. The best thing to do is to speak with your business lawyer or seek advice from one if you do not yet have your own.
It is hugely important to give your business the legal protection it needs before incorporating your startup. Find out what documents your particular business will need by speaking with one of LegalVision’s business lawyers. Just givs us a call on 1300 544 755. We will provide an obligation-free review of your business documents and, based on this assessment, provide you with a fixed-fee quote.