CHECKLIST FOR STARTUPS
It is important to have the proper roots in place to keep you and your business protected. This legal checklist outlines what you should keep in mind as you cultivate your business. DON’T IGNORE THE LEGAL BASICS!
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THE PHASES
SEED GROWTH HARVEST
2
1IDEA BUSINESS FORMATION BUILDING SCALING SEEKING FUNDING
3MATURITY EXIT
BUSINESS FORMATION
Start to grow your business idea by forming a legal business entity. New business owners generally choose a legal structure of a corporation or an LLC (limited liability company). The choice of your entity decision should match your business needs and may also depend on specific financial and tax issues so consult with your accountant!
NEW FEDERAL REPORTING OBLIGATION !
Consult an attorney to determine whether the Corporate Transparency Act obligation to report applies to your business
Filings with the Secretary of State
Preparing governing documents (e.g., bylaws and potentially a buy/sell agreement for a corporation, or an operating agreement for an LLC). 1 2 3 4
Filing for an EIN (Employer Identification Number with the IRS (Internal Revenue Service).
Publishing a notice of organization in your local newspaper, if the entity is formed under Nebraska law.
Some considerations when choosing the right entity are:
Limited liability. Flow through taxation. Ability to take the business public Flexibility of charter documents Favorable employee equity options
INTELLECTUAL PROPERTY PROTECTION
When forming your business and filing with the Secretary of State, you will have to consider whether someone is already using the name you want or whether you can move forward with the name you have selected Individuality and trademark-registered names can make you stand out in your respective industry or market.
Filing for Trademark Registration for your business name. Lightbulb moment?
Have a creative name for your business? Make sure it is covered and protected. This process includes:
Trademark and Secretary of State registry searches.
INCREASED IP PROTECTION
Is your idea/product/service beginning to sprout?
Formulate a plan to protect your ideas, names, works of authorship, inventions, and more In these early stages, evaluate what IP the company has or is interested in obtaining and then work towards:
Pursuing additional trademark
WHAT IP COULD I PURSUE ?
Trademarks: Names and branding
Copyrights: Works of authorship (e g , software)
Patents: Inventions
Trade Secrets: Information not generally known or ascertainable where the owner derives
While patents used to be awarded to those who proved they created the invention first, now, it goes to those who are the first to file their application. It’s therefore very important to get a patent filed as soon as you’re ready
BE PREPARED FOR A STORM
Just like plants, businesses face possible harsh conditions which can be obvious and not obvious. A trusted employee might steal from the cashbox. A customer could slip and fall on the business premises. Your intellectual property could allegedly infringe upon an unknown competitors’ intellectual property
TO MANAGE POTENTIAL RISKS , YOU SHOULD :
Identify the potential risks unique to your business, and evaluate their significance and your exposure
Keep good records, particularly when you start to face harsh conditions
Monitor the risk.
Consider purchasing insurance to cover your crops.
CONSIDER YOUR FUNDING OPTIONS
CONSIDER REAL ESTATE NEEDS
Time to upgrade to a larger pot? Perhaps a field?
As your business begins to grow you should consider your office or building needs. How and if you acquire building space and the financing underlying that decision can have great impact on your options for scaling. Factors to consider include:
The ideal location that positions the business closest to customers, accommodates your employees, and can withstand your continued growth.
Your present and projected cash flow, potential collateral, and the financing options this presents to the business.
The expected duration of your need of the building space and how that impacts your decision to purchase outright, lease, lease-toown, assume, or not obtain a building space at all.
EMPLOYMENT MATTERS
Need more workers in the field? Avoid the "growing pains" of becoming an employer by laying the proper groundwork through:
Complying with tax, reporting, insurance, and notice requirements as an employer.
Considering recruitment strategies, including pay, pay transparency obligations, and employee benefits. Employee benefits to consider:
Retirement (which provides a number of tax advantages to both your company and employees).
Group health (with small business and startup options).
Tax-free fringe benefits (e.g., educational assistance, cell phone reimbursements, etc.).
Building onboarding procedures and ensuring work authorization (Forms I-9).
Complying with wage and hour laws, like job classifications, job duties, and minimum wage requirements
Understanding the basics with state and local laws involving employee protections or required leave obligations
Developing or delegating payroll management
Documenting policies and practices in a basic employee handbook
CONTRACTOR CONSIDERATIONS
I d d l ?
WHERE DO I START WITH EMPLOYMENT DOCUMENTS?
Offer letter
Employment agreements (like confidentiality or non-compete agreements)
Basic job descriptions
Employment policies or a basic employee handbook.
HIRING REMOTE EMPLOYEES?
Make sure you consider state tax consequences, including:
State income tax withholding. State unemployment insurance. State workers’ compensation insurance.
Q U I C K T I P
Employers must be careful not to inadvertently create a group health plan subject to regulatory requirements. For example, reimbursing employees for their out-of-pocket medical expenses could, alone, be considered an “employer-sponsored group health plan” subject to various legal requirements.
The good news? There are legal (and tax-advantaged) options for small employers. Consult with your attorney and benefits broker!
REVIEW AS YOU GROW
Prior to a major event (e g , a scale up in revenue, capital round, entry into a new line of business) and periodically every few years, keep your legal team in the loop to make sure your corporate, IP, and employment and contractor documents continue to meet your ever-changing needs and are appropriate for a company of your size.
HARVEST EXIT STRATEGY
SELLING YOUR CROP
If your exit takes the form of an M&A (merger and acquisition) transaction, complete the following steps:
Engage advisors, including your legal, accounting, and brokerage teams.
Complete corporate and compliance “clean up” to make your business sale-ready
Shop the company and enter into an LOI (letter of intent).
Before closing, reward key employees for helping you “cross the finish line” with equity compensation (which would convert to cash upon closing)
Enter into a purchase agreement and satisfy all of the prerequisites for closing.
Plan ahead for any future exit by maintaining a company minute book. Preserving complete and organized archives of the company’s formation documents, employee records, and third-party contracts will set you up for success with regard to due diligence in the event of a sale transaction.
Just as a seed requires the right environment to flourish, legal guidance is essential for a new business as it navigates the weeds of budding endeavors. With the team of 100 diversely experienced attorneys at Baird Holm, you can rest assured that your legal counsel will always grow alongside you.
For legal counsel you won’t outgrow, contact us at: