Start-up companies face several legal concerns when first starting out, from choosing the best legal entity option to drafting airtight contracts. Below is a list of some of the common legal concerns and pitfalls that start-up companies should consider and address when opening its doors in the United States.
Immigration and Visa Issues
The most important concern of any U.S. start-up company should be making sure that its founder can stay in the U.S. Without the presence of the founder, the company will suffer or even fail. Therefore, it is imperative that start-up company founders ensure that the proper immigration procedures have been followed and that a proper visa application has been submitted and approved. Hiring an immigration attorney offers you the best chance of success and alleviates the concern of a minor error delaying or causing a denial of your application. There are several immigration visa options available to entrepreneurs and business owners wishing to come to the U.S. It is important that you understand the benefits and downsides of each one and chose the best visa that fits you. In addition, the founder should keep track of the expiration date of his or her visa and request an extension as necessary.
Start-up companies need to address and protect their intellectual property at the very outset of their business. This avoids the prospect of getting a couple years into the company only to realize that it must change its name or the name of a popular product or service because another person realized the company is using a variation of their name and wishes to sue you. Therefore, you should trademark your company’s name and products at the beginning. You should also address any patent, service marks, or copyright concerns, if applicable to your start-up, for the same reasons.
Companies should also consider whether they have any trade secrets that they wish to adequately protect. As such, it is a great idea to have confidentiality agreements, or non-disclosure agreements, signed by each founder and employee, which prevents the sharing of confidential business information with outside parties.
Another legal issue that start-up companies face is properly dealing with data security. Failing to protect your data could result in not only the loss of customer confidence and business but also in legal trouble. Hackers are adept at breaking into systems in order to gain access to customer data, such as credit card numbers, passwords, and phone numbers. Your company needs to implement adequate encryption and protection of personal information at the outset so that a security breach does not threaten your business in the future.
When first starting your company, you will need to determine what type of business formation or legal entity you wish to use. There are many options, and some will depend on which state you choose for your principal place of business. The most common options are a Limited Liability Company (LLC), a Partnership, or a Corporation. Each option will have specific tax and liability effects that you should know and understand before making your decision. In addition, some will require more work than others. For example, a Corporation requires meetings of the Board of Directors and the issuance of stock. Founders of U.S. corporations will also need to ensure that they comply with all of the securities laws when issuing stock.
You will also likely be dealing with several contracts from different types of companies and people when first starting your company. These may range from employment contracts to technology servicing contracts to lease agreements. You should ensure that you read the legal documents carefully and, preferably, have your attorney review them for you, as well. You do not want to wait until a problem arises before you read the contract for the first time and realize that you have no legal course of action to alleviate your concerns.
Start-up companies must keep proper employment documentation, as well. These include stock option documents, employment offer letters, an employee handbook, USCIS Form I-9s and W-4s, benefit forms, and the like.
In addition, start-up companies need to be aware of the relevant tax issues and the consequences for not adequately maintaining the proper records. The choice of legal entity will play an important role in how your tax records are maintained and filed. Founders will also need to consider sales tax, payroll tax, stock option issues, Section 83(b), and tax incentives.
Cultural and Custom Way of Doing Business in the U.S.
Founders of start-up companies in the U.S. should prepare for some cultural differences in the way of doing business in this country compared to their home country. In order to flourish in the U.S. marketplace, founders may need to adjust to the custom ways of doing business here.
In the United States, business owners will often take an approach that is “business-first”, with personal relationships being secondary. Americans are also often direct, asking directly for what they want to see happen without softening the request in order to appease the other. They will also expect you to not be shy, unassertive, or to appear weak. American businesspeople expect interactions related to business to be professional and polite. They appreciate confidence and persistence and for others to be punctual to meetings.
Bargaining strategies in the U.S. may also be different than in your home country. In the U.S., negotiations are many times began with unrealistic and exaggerated demands, which will be adequately but quickly discussed and adjusted to arrive at a signed agreement.
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