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.

  1. Not selecting the appropriate type of legal entity for the business and founders
  2. Building up equity in a brand name or logo without first adequately clearing and protecting it for use
  3. Overlooking the need to clearly agree on and properly document founders’ roles and responsibilities
  4. Failing to develop and implement a comprehensive IP strategy for the business
  5. Assuming that raising capital from “friend and family” does not invoke securities laws
  6. Non-compliance with labor and employment laws
  7. Failing to properly structure a bonus scheme or equity plan for the benefit of executives and employees of the company
  8. Assuming that social media, data collection and other online and mobile activities can do no harm
  9. 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.


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