With the right vision and products, a startup can turn into a massive business empire (like Apple, for example). However, a lot of startups make serious legal mistakes that put their future in jeopardy (just like Apple did, for example).
By looking at what has happened to others in the past, it becomes clear that startups are prone to a couple of specific mistakes:
1. Not having a clear agreement with all the co-founders.
Apple nearly vanished into obscurity because its co-founders fell out early on. You want to avoid the potential for this to happen at all costs.
You need to have a written agreement between all the founders that spells out:
- What each founder’s responsibilities are
- Who owns what percentage of the company
- How ownership vests
- How key decisions will be made
- What each founder’s investment will be
- What happens if a founder wants to leave or quit
- What happens if the others want to remove a founder for some reason
- What the basic vision of the business is like
There may be other issues that need detailed, as well — so that list is just for a start!
2. Not having the right business structure.
Having the right business structure from the start is important. It helps you understand your legal obligations toward taxation. It’s also the number one way you can protect your personal assets from legal liability if the startup flounders — and that’s an important concern.
Again, this is something that you want to make sure that you discuss with an attorney who is experienced in business formation and all your co-founders. You can work on an agreement together, decide your business structure and make sure that you have all of your regulatory and licensing paperwork in order before you get too far down the road.