Starting a business takes more than just a cool idea and some fundraising. Behind the scenes, the details run the gamut from establishing company structure to protecting intellectual property. Attorney Willa Kalaidjian, the chair of the Chambliss Startup Group, shares her insights on what it really takes to stand up a startup.
Deciding on structure
There are several entity types, but startups and small businesses typically organize as limited liability companies (LLCs) or corporations. Choosing which entity is best may depend on the industry, number of owners, and other legal and tax preferences. Both LLCs and corporations provide similar protection from personal liability for business debts.
LLCs are often favored by small businesses and generally offer more flexibility than corporations, which are subject to strict statutory requirements. While LLCs are also governed by state law, many of those laws can be modified in the operating agreement.
Equally important to choosing the right entity structure for your business is ensuring all owners understand their roles. Ownership interest, rights and obligations should be clearly outlined in organizational documents to reduce uncertainty if relationships do not work out or if an owner needs to leave the company for unforeseen circumstances.
Protecting intellectual property
Intellectual property (IP) is often the most valuable asset of a startup, and it is critical to take steps early on to secure and protect inventions, know-how and other proprietary IP. Failing to protect IP appropriately—through patent, trademark, copyright or trade secret—can have serious consequences and result in loss of protection. It is critical to secure rights to use essential intellectual property through IP assignments, employment agreements and license agreements. Finally, all startups should take steps to protect their confidential and proprietary information through non-disclosure or confidentiality agreements with employees, service providers, vendors and other parties who have access to proprietary processes, financial information, client lists and supplier information of the business.
Building company culture and smart partner relationships
Implementing a great idea requires support from a strong team. Your company culture will be a driving force in retaining and attracting employees. Engaging employees at every level and valuing their contributions will pay dividends down the road. Building and nurturing company culture is a process and takes time, effort and insight; but starting with a strong mission and identifying core values and a vision is an important first step.
At some point, it may be appropriate to bring on a corporate partner or strategic investor with access to resources and networks. Such relationships can provide much needed support and spur rapid growth. Smart partnerships involve a balancing of roles. It is important to identify business milestones and deliverables to ensure the partnership will align with the company's goals. Finally, make sure you spend the time to document partner relationships through a written agreement to ensure both parties have a clear understanding of expectations and responsibilities.
Managing regulatory risk
All businesses are subject to regulations, although certain industries may inherently be subject to more regulatory risks and requirements than others. Health care companies with access to personal health information must follow strict privacy regulations and ensure such information is protected from improper disclosure. Makers of new drugs or medical devices go through approval processes with the FDA before their products can be marketed and sold. Devices that emit radio frequencies are subject to certification processes with the FCC. Manufacturers may be subject to regulations with respect to air emissions or waste generated. Companies that own or develop real estate may need to address environmental issues and negotiate liability protection with state agencies or the EPA. Your company may be subject to state and federal employment laws, including worker health and safety laws. All companies must comply with state and federal taxation laws and regulations. Through proper due diligence and seeking specialized legal advice where appropriate, a startup can largely predict, identify and navigate regulatory risks successfully.
Willa Kalaidjian focuses her practice on startups and emerging companies, general commercial and business transactions, environmental compliance, and telecommunications and energy law. She works with startups and entrepreneurs on entity choice, governance and business planning, trademarks, technology rights, and financial transactions. Kalaidjian holds a bachelor's degree from Columbia University, a master's degree from Pace University and a law degree from Emory University.