Personnel Practices: Legal Considerations for Start-Ups

by C. Alexander Chiulli, Esq. and Kristen M. Whittle, Esq.

When organizing a start-up, business owners typically engage the services of a number of professionals, including realtors, accountants, and attorneys. It is important for new businesses to determine where the business will operate, ensure that its finances are in order, and confirm that it is in compliance with applicable laws and regulations. Start-ups often have substantial flexibility in their operations and will face many decisions as to how to set up their business within the confines of the law. The following topics are examples of areas that new businesses should discuss with their attorneys and iron out prior to opening their doors.

Entity Choice and Formation
At the outset, it is essential that business owners secure the right legal benefits and protections. Early on, business owners should select the legal entity that best suits their business’s needs with respect to liability protection, corporate governance, and day-to-day operations. Specifically, start-ups may choose to organize as a sole proprietorship, partnership, limited liability corporation, or corporation. Each of these entities has risks and benefits, and there are numerous legal, financial, and managerial implications that must be carefully considered. For example, sole proprietorships may offer business owners more flexibility than corporations, but also carry a higher risk of personal liability.

Contract Basics
Very few people enjoy the rigors of producing and executing contracts. Well-written contracts are nonetheless vital to a business’s continued growth. Contracts such as purchase and sale agreements, employment agreements, vendor agreements, terms of service, and leases (plus many others) establish the “meeting of the minds” needed to conduct business while protecting the discrete interests of the parties. Professionally-drafted contracts not only help prevent problems before they arise, but can prompt more efficient dispute resolution.

Intellectual Property

Intellectual property is enormously important to today’s economy. All businesses—regardless of their type, size, market, services, or products—should understand the distinctions between copyright, patent, trademark, right of publicity, and trade secret as well as what these areas of law mean to their business. For example, businesses should consider trademarking their business name or logo to better manage their goodwill and reputation, and businesses in the science and technology fields may wish to pursue patents to protect their newly-developed products. By failing to recognize the significance of intellectual property, businesses drastically increase their risk of confused consumers, unrealized opportunity, and ultimately lost revenue. Identifying, securing, and protecting intellectual property is essential to realizing a business’s success. 

Licenses and Regulations
Many businesses may be subject to local, state, and/or federal regulatory and licensing requirements. Ignorance by business owners as to the governing regulatory scheme may lead to undesirable delays, costly problems, and long term consequences that new businesses cannot sustain. Certain industries are subject to significant governmental oversight, including health care, food service, and construction. Before moving forward with a business, business owners should check with industry-specific licensing bodies and regulatory agencies in order to understand and better navigate their requirements.

Employment Considerations
Prior to hiring, business owners should determine whether to engage employees or independent contractors, and whether employees will be at-will or contractual. Although there is no one-size-fits-all solution for start-ups, potential employers should weigh the benefits of these options. For example, contractual employment may provide more workforce stability but decreased flexibility in discontinuing an employment relationship.

Although start-ups often (rightly) focus on the substance of their new business, it is important to remember these legal considerations so as to protect the business from potential pitfalls down the road. Proactive legal consideration can prevent problems and provide substantial cost-savings to a new business as it grows.

C. Alexander Chiulli, Esq. Associate, Barton Gilman LLP

Kristen M. Whittle, Esq. Associate, Barton Gilman LLP

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