As if starting a business wasn’t hard enough in economic terms, entrepreneurs have to deal with legal conundrums from day one. The exact list of legal requirements they have to comply with differs from state to state.
Paperwork valid in Queensland might be deemed as insufficient in New South Wales, to name one example. In order to avoid such and similar legal snares, you should draft a list of the top legal must-dos together with your solicitor.
Applying for an Employer Identification Number
An entity that wishes to open a corporate bank account will be asked by the bank for an Employer Identification Number or short, EIN. Among other things, the number is necessary to properly file the tax returns of your company.
The Internal Revenue Service (the notorious IRS) is in charge of issuing the number. In most parts of the world, it is possible to apply online by filling out a form on the IRS’ official website. Also, be ready to share the founder’s social security number and personal data.
Mind you, keep a copy of the application in the digital format, just in case.
Learning to form a proper business entity
It’s essential that the business entity you form is “correct,” to put it as such. This decision affects your personal liability, the tax rate applicable in your case, and the ability to raise (extra) funding.
In most cases, a C corporation will suffice, as this type of enterprise is appealable to investors.
Furthermore, your startup will be able to raise venture capital. Also, choosing a proper business entity helps avoid the snare of double taxation.
Incorporating your startup is a smart move, even if the state legislation doesn’t require you to do so. When incorporating, always make this legal move in your home state. The “Inc.” sign adds both flexibility and credibility to your business, which is appealable for outside investors.
Don’t misclassify your employees
In Australia, worker classification is done based on the duties they perform. However, employers often misclassifying their staff, which could lead to subsequent legal troubles. Firstly, you should learn the difference between a freelance contractor and an employee. Essentially, you have more control over an employee contrary to an independent contractor.
Business owners need a mutual written agreement
When there are multiple business owners, there should exist a mutual written agreement. For corporations, a shareholder agreement needs to be signed. The agreement should contain authorized shares, a list of all the incorporators, the state the purpose of the company, give the name of the corporation and provide the authorized agent’s name.
Enlisting the help of a savvy solicitor
You might have realized by now that there are numerous legal terms that you need to look. However, perusing through laws and dictionaries is not the job for the entrepreneur but making money. The legal issues should be left to a savvy solicitor.
There are many law firms out there but in general, choose layers from your local area i.e. state. For instance, solicitors from Tamworth will know how New South Wales’ legal system functions. Furthermore, the solicitors should be experts in contract law, securities law, employment law, etc.
Protection of intellectual property
Entrepreneurs start companies because they want them to succeed (obviously) so they require legal protection. The intellectual property of a typical startup consists of everything from patents to trade secrets, which all need excellent protection.
The key to protecting your startup’s IP is to file a patent, for example, as soon as possible. In some cases, the patent bureau can take up to half a year to issue, so you should start the process as early as possible. The more secure your intellectual property is, the more interesting you’ll be to prospective investors.
Not all investors are the same
Speaking of investors, you can be certain they will run your enterprise through various checks, including the legal one. This isn’t a bad thing, as you should do the same to confirm that investors are committed to investing in your company.
A short legal checkup of their history should reveal whether the venture capitalist or an angel investor is serious about investing in your startup. Apart from their general background, look for relevant industry experience. You can ask your solicitor to lend you a hand if the initial online search fails to yield credible results.
A vesting schedule is a real must
Back to the founders, they too need to be 100% committed to the success of the startup. Once they are incorporated, a vesting schedule should be penned to clearly state stock ownership founders will vest over a given period in the future.
As a short-term measure, a vesting schedule prevents any of the founders from quitting but keeping hold of their stocks. Moreover, a vesting schedule is a must when it comes to investors’ requests, as they won’t agree to the first round of financing without one. Before you enter negotiations with potential investors, have at least a draft of the schedule ready for them.
Complying with securities laws
Finally, your enterprise regardless of its legal form (entity) is required by national and start laws to provide info about the company. This information enables the legislator to govern a fair trade market, protecting all players against monopoly, for example.
Furthermore, securities laws help prevent fraudulent activity, such as trading fraud and insider trading. Failing to abide by these laws entails the startup having to (re)purchase its shares, regardless of the fact if they have gone bankrupt. The worst thing is that the buyback price is the issuance price.
Running a startup in Australia is not only exciting but profitable. However, entrepreneurs first need to solve the legal issues that might thwart the grown of their business later on. Once they compile a short checklist with the help of a reliable solicitor, business owners can turn their attention to generating profit.