Legal Issues for Start-Up Companies in Massachusetts: Essential Advice
Navigating Legal Challenges for Your Massachusetts Start-Up
Congratulations on launching your new venture! Those early days of entrepreneurship are filled with excitement, but they also come with their fair share of challenges. While you've likely spent months refining your product, devising a marketing plan, and securing initial capital, it's essential not to overlook the critical legal considerations that start-up companies face.
At slnlaw, we understand the unique needs of entrepreneurs, having been there ourselves. Let's explore the key legal issues you should address, regardless of your business type or structure. If you have specific questions, don't hesitate to visit our start-up company frequently asked questions page.
Agreements With Your Partners
Before revenue streams in and cost pressures mount, informal handshake agreements with friends or colleagues might seem sufficient. However, it's crucial to keep in mind that approximately 70% of small business partnerships eventually dissolve. As your business grows, the pressures of reality may strain your relationship, making it even more challenging to reach a consensus on core issues.
Even if you're not ready to incorporate your business formally, a straightforward written contract that covers essential aspects can save you time, money, and potential distractions down the road. Moreover, the law already imposes a fiduciary duty on partners toward each other, even without a contract. This duty entails "utmost good faith and fair dealing," a higher standard than what typical business relationships adhere to. A written agreement clarifies the scope of these duties and addresses issues such as intellectual property ownership, business entity management, and handling departures from the business.
Your Corporate Form
Creating a formal business entity, whether an LLC or an S Corporation, isn't mandatory when starting a business. However, as an entrepreneur, safeguarding your personal assets from business-related liabilities is crucial. Lenders and other business stakeholders often seek personal guarantees when dealing with start-ups. While personal liability for business debts or third-party claims can't always be entirely avoided, consulting with an accountant can help determine which entity type (LLC or S Corporation) aligns best with your financial and tax objectives. Both entities offer liability protection when structured correctly.
Common Employee Compensation Mistakes for Startups
Deferred Compensation: Start-ups often face challenges when structuring compensation agreements with key employees who understand that revenue generation might take time. While deferred compensation might seem like a practical solution, it can conflict with the Massachusetts Wage Act. In cases of strained employee relations, deferred pay can lead to significant liabilities for both the company and its officers. Consulting with an employment lawyer can help you design deferred and incentive compensation plans that comply with the law.
Hiring Independent Contractors: Many start-ups opt for independent contractors (1099 workers) due to cost savings or irregular service needs. However, Massachusetts law imposes strict criteria for classifying workers as independent contractors. Mistaken classification can result in substantial costs. It's vital to navigate this aspect of employment law carefully.
Your Business Contracts
While not every interaction requires a formal contract, key relationships with vendors, customers, or clients should have documented terms. These agreements need not be overly complex, but clarity regarding important business terms from the outset is vital. When creating contracts, avoid the temptation to download generic templates from the internet, as they may include irrelevant or confusing terms. In some cases, a simple, clear summary communicated through email or handwritten notes can be more effective. Learn more about the basics of business contracts.
Protecting Your Brand
As soon as you start using your business name, tagline, or logo, you may become eligible for trademark protection. Although it may seem early to consider trademarking, the initial stages of your business offer the best opportunity to secure protection for the words and imagery associated with your products or services. Discover more about trademark basics for small business owners.
Need Help With Your New Business?
Need Some Preliminary Feedback About a Business Issue?
Our Solutions Roadmap is a quick and easy way to share some information about your situation and your goals and receive preliminary feedback from a member of our team. Use the button below to get started- it is 100% confidential and 100% free.
How We Can Help
At slnlaw, we offer expert legal counsel to help Massachusetts start-up entrepreneurs address crucial legal matters. Our experienced team can guide you through partner agreements, business contracts, and trademark protection, ensuring your venture's legal foundation is strong and secure. You can use the button below to schedule a free information call, or just give us a call at (781) 784-2322.