Business Start-ups
Excitement – Risk
In my thirty years, plus, of practicing law I have consulted with dozens and dozens of start-up
entrepreneurs. Some succeed and many
fail but all start out enthusiastic and optimistic. It is the enthusiasm for a new product or new
idea that catches my attention and makes it fun to practice law.
I have learned over the years that there are some very
predictable hurdles and sometimes pitfalls that can be avoided with some
planning, warning and careful execution.
I want to share some of them to help the unwary hopefully become aware
of some issues and avoid some costly
mistakes and missteps. Ben Franklin’s
advice is timely today, “An ounce of prevention is worth a pound of cure”. Here are a few ounces.
Sharing your ideas.
Enthusiastic start-uppers love to share their idea, their
product, their plans. Keep in mind, that
a trade secret is only valuable if you keep it secret. If you share it at a party, over the backyard
fence or especially on Facebook or a blog, it is no longer a trade secret. Many folks lose their intellectual property
by failing to have non-disclosure agreements signed before they talk about
their great new idea. A simple “NDA” or
non-disclosure agreement can save a lot of frustration in the future when you
go to patent or market your product or idea.
Trademarks, trade names and copyrights can lose their value, too, if you
don’t protect them. Failing to lock up all variations of domain
names has been a problem. Learn what you
can do to protect your intellectual property (the catch-all term for all the
above) without incurring a large legal fee.
Some very simple steps can save a lot of time and money.
Raising Money.
It is said that start-ups get their money from the three F’s
-- F cubed, that is, family, friends and fools.
Watch a few episodes[1]
of Shark Tank® and you will get a
real feel for where people get their initial start up money, family, friends,
college funds, credit card floats, inheritances and yes, some fools. This is where most failed start-ups trip
up. A bad financial plan or worse yet,
no financial plan at all, is the death knell to a start-up. Running out of money or using credit card 12
to 18% interest soon takes its toll and the business fails not for want of a
good idea or product, but for want of a good plan. Sit down with a C.P.A. or a successful
business man or woman and run your financial plan by them. Add up
your expenditures. Add up your income. Be
conservative and then cut your income in half and double your
expenditures. You need to be prepared to
carry your business until it turns a profit and you need to know where that
money to carry it is coming from.
Caveat Venditor
If you are asking people for money you are walking through a
mine field of risk. If you borrow even a
few hundred dollars from someone and that someone expects a return on the money
simply because they loaned it to you, it could be a security, in fact, under
Utah’s securities laws it is a
security. Whether you get in trouble for
doing it depends on the circumstances, but this minefield requires a map to
avoid getting blown up. In most settings
all of the presumptions are against you as the borrower. You are rarely
seen as an innocent borrower but as a guilty securities creator, securities
seller, trickster, con artist. Really,
be careful. Again, an ounce of
prevention is worth it.
Employment Headaches.
No start-up can be successful without soon hiring or needing
to hire employees. Traps and pitfalls
include bringing on friends, or potential co-workers, and failing to pay at
least minimum wage, with the promise, “when we make it big, I’ll make it up to
you” or “I’ll give you stock in the company instead of wages”. This doesn’t work. Minimum wage and overtime are laws you need
to become aware of and follow. Penalties
for non-compliance can kill a small company.
Even thought Federal civil rights
employment laws don’t necessarily apply until you get 15 employees, they are
still important to understand. Simple
policies, procedures, posters, and training can avoid hours and dollars wasted
in defending your company.
Chill Out.
Wow. After re-reading
my own article, I see how start-uppers can be hesitant to talk to an attorney! However, it’s really not as bad as it
seems. A lawyer can give you not only
advice about specific laws, but if she or he has good experience you can get a
simple plan and process to follow as you proceed so you can avoid these issues
as you proceed in growing your dream into a reality.
Mark D. Stubbs
