Legal Pitfalls When Structuring A Company – Effects On Fundraising Success
Navigating the startup landscape is confusing for a novice founder, and legal pitfalls when structuring a company are more common than believed. It’s not unusual for newbies to be so excited about their brilliant idea that they overlook the legal nuances of structuring the business.
Navigating the startup landscape is confusing for a novice founder, and legal pitfalls when structuring a company are more common than believed. It’s not unusual for newbies to be so excited about their brilliant idea that they overlook the legal nuances of structuring the business.
Knowing and understanding the potential pitfalls at the onset can help you avoid them. These errors pose significant problems down the line when you’re ready to raise capital. VCs, PE firms, and other investors will conduct detailed due diligence at that time.
Trying the fix the errors will be more time-consuming and complex. And most of the damage will have already been done. Read through these common mistakes founders make and how to avoid them.
Make sure to collect the documentation as you go along to streamline the due diligence process.
*FREE DOWNLOAD*
The Ultimate Guide To Pitch Decks
Not Structuring the Company Per Legal Regulations
Structuring the company per federal regulations is crucial since it influences its other aspects. The taxes you pay, the personal liability you incur, and the ability to raise funding depend on the structure. You should incorporate the company even if you’re bootstrapping and available funds are low.
Investing the time and effort is worth it since investors, precisely venture capitalists, are more likely to back corporations. You’ll register the company in the state and city where you intend to conduct business. Future expansion plans will also determine the jurisdiction, such as state or federal.
For instance, if you plan to restrict operations within a particular state, you’ll follow the incorporation policies of that state. However, federal incorporation is advisable if you think the company can scale across state borders and possibly even overseas.
Once the company is incorporated in a federal jurisdiction, it can conduct business in any location across the country. Investors examining your company structure will want assurance that it can scale and capture markets in other geographical locations.
Not Registering the Company’s Intellectual Property
Not registering the company’s intellectual property is one of the crucial legal pitfalls when structuring a company. IP includes assets like the domain name, brand name, logo, trademarks, and trade secrets. Registering these assets clears ownership rights and eliminates potential chances of infringement or theft.
Continue reading the full guide
Related guides
