ACCAM15 – Start-up? Avoid the Top Legal Mistakes
Legal representation within start-ups, where risk can be widespread, is usually scarce at best.
A panel at the Association of Corporate Counsel annual conference discussed the top legal mistakes made when starting a business, and provided tips and suggestions to avoid those. The panel, moderated by Barbara Harris, senior legal editor of Practical Law, a Thomson Reuters business, featured: Deborah Gray, general counsel, Achievement Network Ltd.; Jeffrey Hyman, general counsel, Pebble Technology Corp.; and Alexis Shapiro, former senior vice president and general counsel, The Orchard.
Many people likely have a similar view of start-ups beginning in a dorm room or a garage amongst best friends. And in this scenario, the founders of start-up companies may not think that legal counsel is important because they are a start-up and as friends they can work out any conflict over a couple beers. As great as that vision may be, reality usually works out differently.
The session opened noting the biggest “big” legal mistake a start-up can make: Not involving counsel soon enough or effectively enough. The group reflected on comments they have heard in this scenario such as: “Start-ups don’t need counsel”; “We don’t have to worry about all the legalities and compliance issues now – we have bigger problems”; and “Let’s just launch and then we’ll deal with these things.”
Falling under the big mistake, the group discussed nine additional legal mistakes start-ups often fall prey to and should attempt to avoid.
- Not selecting the appropriate type of legal entity for the business and founders
- Building up equity in a brand name or logo without first adequately clearing and protecting it for use
- Overlooking the need to clearly agree on and properly document founders’ roles and responsibilities
- Failing to develop and implement a comprehensive IP strategy for the business
- Assuming that raising capital from “friend and family” does not invoke securities laws
- Non-compliance with labor and employment laws
- Failing to properly structure a bonus scheme or equity plan for the benefit of executives and employees of the company
- Assuming that social media, data collection and other online and mobile activities can do no harm
- Failing to properly document fundamental customer, employment and other key third-party relationships
Legal Current caught up with Harris to recap the major takeaways from the session as well as what start-ups can do to avoid these and other legal issues on their path to success.
