Starting up a Nevada business enterprise? Don’t forget these legal dos and don’ts
RENO, Nev. — Starting a business is much like building a house — without a strong foundation, you’ll have a house of cards that can collapse in times of trouble.
Entrepreneurs who want to monetize a new idea or start a business should consider bringing in legal counsel before they even break ground to ensure they are building a house of stone that can withstand any challenges, Northern Nevada attorneys say.
And as Reno’s startup/entrepreneur community continues to grow, it’s equally important fledgling businesses owners understand the full scope of services that legal representation can provide, they add.
Steven Caloiaro, of counsel with law firm Dickinson Wright, specializes in working with early-stage startups. He says cash-conscious entrepreneurs often take the approach that they’ll just address legal issues as they come up – but that’s a flawed strategy, Caloiaro says.
“It’s really important to seek legal counsel to make sure your company is getting off on the right foot,” he says. “I’ve worked with a number of startups who come in when, quite frankly, it’s too late. Something’s already happened that’s impossible to fix.
“From a legal perspective, starting off where everyone is clear who does what, how the company is formed and who gets paid what is important.”
Spending plenty of time, energy … and money
It’s equally important to properly form the enterprise, adds David Lewandowski, corporate attorney with Fennemore Craig. Sitting down with an attorney prior to establishing a company can help founders better determine if they should form an LLC or incorporate under common corporate structures such as S-corps or C-corps.
Hammering out these decisions early on can alleviate a great deal of pain and expense, Lewandowski says.
“When working with entrepreneurs, it is important to first see what their goals are and how they want to grow the company,” he says. “Do they want to take it to an exit, or is it more of a lifestyle business? A lot of those decisions will factor into what type of entity they should be.”
Although entrepreneurs can always switch entities, that conversion doesn’t happen without spending a lot of time, energy and money, he adds. And it’s also important to choose the proper legal structure if company founders will eventually seek funding from angel investors and venture capitalists.
Enlisting legal help also demonstrates a level of sophistication that investors in today’s day and age want to see, Caloiaro notes. Startups that have all corporate documents clearly defined and established make it much easier for investors to commit financing – and entrepreneurs who lack properly legal documentation regarding their business entities can send a red flag to investors that they may not have the business acumen to bring their ideas to fruition, he adds.
“Investors are looking for entrepreneurs they can trust to pay back their money in multiples,” Caloiaro says. “It shows a level of sophistication that makes investors aware your truly know what you are doing.”
The importance of clear legal agreements
Another key aspect when starting a business, Lewandowski adds, it hammering out vesting agreements between the founders to ensure there’s proper legal documentation in place in the event of death, disability or divorce.
These agreements can protect business owners as well as ensure company founders remain committed to the venture throughout its infancy.
And if the business grows and someone wants a larger slice of the pie, legal agreements that clearly delineate ownership percentages and financial compensation remove ambiguity – and are iron-clad in the courtroom.
“It’s easy to resolve from a legal perspective. Contracts in Nevada are held to very high standards and they are very difficult to defeat if they are well written,” Caloiaro says.
It’s important legally for entrepreneurs to protect their intellectual property, Caloiaro says.
“A lot of people misunderstand intellectual property – there is no general right in the Unites States for the protection of ideas without a further step taken by the inventor of the idea,” he says. “Once an idea becomes publicly known, the inventor has a year to file for patent protection. If you don’t file within a year’s time, your patent rights are exhausted and the idea is owned by the public.
“We always tell entrepreneurs to come to us first and we’ll tell them if their idea is patentable.”
Being accepted by the U.S. Patent and Trademark office provides a level of legitimacy to your idea and shows that there is something concrete there for investors to potentially finance. And when founders are raising seed or series money, there are federal and state securities laws that can trip up inexperienced entrepreneurs. Engaging legal counsel through the process helps startups avoid legal missteps, Lewandowski says.
Don’t forget to shop around
Lastly, entrepreneurs should shop their businesses to multiple law firms. Many regional firms offer new business startup packages that can guide entrepreneurs from inception all the way through drafting legal agreements between partners.
“In this day and age, a lot of law firms, especially in Reno, are really interested in working with startups that are doing cool things in the hopes that the once startup makes it big they will continue engaging the same legal representation,” Caloiaro says. “I’ve worked with startups at a discounted rate because I see the potential in what they are doing and I want to get in on the ground floor.
“If you have a really good idea attorneys will be interested in working with you, so don’t be afraid to see what other firms will offer you.”
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