Starting a business? Know when to get help to grow it
With all the hustle and the juggling act of starting a new business, it can be difficult to pin down the right time to bring in certain advisors. It’s true that there are thousands of online resources at your fingertips and it is tempting and common for founders and their teams to DIY a lot in the beginning. However, as your business grows and evolves, bringing in a lawyer and other advisors as soon as you reasonably can will save you time and money down the road and help you broker deals.
All startups experience similar growth pain points – 1) formation, 2) expansion, and 3) maturity, and regardless of the company’s long-term goals, founders need to hone in on certain aspects of the business at each stage. This article will focus on that sweet spot between formation and through expansion, at which point many startups find themselves facing considerable challenges that oftentimes include cash flow. Good corporate structure and governance, solid contracts, and data privacy and security basics are all prerequisites to ensuring success at the funding stage.
Corporate structure and governance
The right corporate structure and governance practices are vital to the success of any startup.
From the very beginning, founders must choose whether the company will be formed as an LLC or incorporated as a corporation. If the latter is chosen, founders face another decision on whether it should be a C Corp or S Corp, and yet another on what state it should be domiciled in. For example, here, in Silicon Slopes, investors, and therefore founders, highly favor Delaware corporations, as the state has been a longstanding corporate and tax haven.
Many factors drive corporate structure, such as taxes, administrative simplicity, personal liability protection, employee retention programs, and even estate planning. The correct structure and organization of the company is important to establish, but keep in mind, they are not set in stone. Your business can be restructured or reorganized at any point in time, and some of the most successful startups go through this process at least once in the company’s early stages.
Outside of the company’s organization and structure, founders should be proactive in forming a strong board of directors and confirming that the board and all the board members’ roles are clearly defined and implemented. Good corporate governance practices not only provide for internal checks and balances but also speak loudly to the company’s management. It’s no secret that investors seek cutting-edge products, brands, and missions, but alongside that, investors want to protect their investments and one-way founders can guarantee that is with good housekeeping.
Contracts are another business aspect we often see founders DIY, and there is no problem with that until there is. To avoid the nightmares of litigation or other costly disputes, one of the most important things a lawyer can help with, is a full sweep and audit of existing contracts, forms being used, and current and future needs.
So, the company is up and running, or even pre-revenue and at the funding stage… At this point, the most important contracts generally fall into the following categories:
- Corporate governance
- Founder(s) agreements
- Investment and financing documents
- Employment and/or independent contractor agreements
- Confidentiality agreements
- Service agreements and/or vendor contracts
- Customer agreements
- Joint venture or partnership agreements
- IP agreements
- Commercial lease agreements
In the employment space, founders should focus on the company’s stock plan and equity grant documents, non-competes, and IP assignment agreements before the hiring and onboarding process. In the sphere of IP, license agreements and USPTO filings may be essential to protect what may be your startup’s most valuable asset – intellectual property.
Beyond drafting contracts and creating a valuable form database, a great corporate lawyer should also be there to set terms and negotiate alongside you. This is another important reason for adding a lawyer to your team earlier rather than later – the best advisors are not only experts in their field, but should also be well-versed experts of your business and goals.
Data privacy and security
Building a business is a difficult enough endeavor on its own. Bringing together the right team and delegating will help you take your company to the next level.