Launching a startup—successfully—requires much more than merely having a good idea. From operations to logistics to financing, there are a variety of legal matters that must be handled professionally and timely, prior to the launch of the company.
While each startup is of course rather idiosyncratic in its narrative and business model, the vast majority of startups must all undergo what our law firm likes to refer to as, “The 4 Legal Essentials.” Indeed, consider the following as the core list of legal steps your Startup must entertain; Forming a legal business entity, drafting an operating agreement, obtaining a trademark on the company name, and obtaining financing with startup-friendly term sheets.
- Registering your startup as a bona fide business entity involves both strategic and tactical decisions. Depending on a variety of factors, including the number of co-founders your startup has, whether or not you need to raise capital, the type of capital you want to raise, and considerations vis-à-vis tax implications, you may either choose to apply for an LLC or a Corporation.
- A company operating agreement is perhaps the most important founding document a startup can have. When there are multiple founders involved, it is absolutely critical to delineate the roles and responsibilities of each person involved. How much equity is each founder entitled to? When does the equity vest? What happens to the equity if one of the co-founders quits? These can obviously be very tricky and potentially awkward discussions to have and it is therefore important to iron out these details at the beginning of the company’s evolution while everything is still smooth and amicable.
- A Trademark is a critically important legal tool available to a cannabis startup and is used to brand its company assets. On the most fundamental level, a trademark is a source identifier – when a consumer sees a company name or logo (the trademark) on a product, the purchaser immediately recognizes the source of that good. Consider the Apple company’s logo – do you have any doubt which company produced the computer, which bears its mark? Of course not. Obtaining a trademark on your company name is important for a number of reasons, however, most importantly, it prevents competitors from using your mark on their products. If your mark is used without permission, you have the right to sue for injunctive relief and potential damages.
- Raising Capital is a foregone conclusion for most start-ups. The various costs associated with launching a new venture are almost always too much for a startup’s founders to burden without the help of outside investors. When raising capital, founders and investors will negotiate and codify the nature of their financial agreement (the startup’s valuation, the amount of cash for equity, etc.) in a document called a “term sheet.” Of course, each side will push for terms that favor their position, and it is therefore important to read and draft these documents very carefully indeed.
Although these four legal essentials may seem rather obvious, unfortunately, many startups neglect to avail themselves of these steps. Launching a startup requires grit, ingenuity, hard work, and a quite a bit of smarts. Don’t let a lapse in legal judgment and make the process even harder.
Meet the Author: Abe Cohn
Abe Cohn is the COO of THC Legal Group, a Cannabis practice area of Howard M. Cohn & AssociatesTHC Legal Group is comprised of Cannabis Lawyers with decades of experience in Intellectual Property protection. Their Cannabis attorneys assist start-ups, entrepreneurs and established businesses protect their most prized assets.
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