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January 16, 2020

Laying the Legal Groundwork for Your Texas Startup

Business Planning

When you are founding a startup here in San Antonio, you have hundreds if not thousands of balls in the air, and it’s easy to miss a few. Depending on your business, you need to complete the last touches on your product, tweak your marketing plan, hire staff, train salespeople and make sure hundreds of other things are polished for prime time. But while you are making last modifications to the innovative design that’s going to revolutionize your market, it’s easy to overlook some of the many legal issues you must address that can make or break your business. 

Below is a checklist of some of the major legal issues you really can’t ignore, but this list is hardly comprehensive. You will need to take the time to meet with a solid San Antonio business attorney to be sure you have not overlooked something that will come back to bite you.

Make a Clear, Written Agreement with Co-Founders

If you are starting a business with co-founders, you absolutely need a clear, written agreement. A miscommunication can submarine your business or possibly leave you personally out in the cold. Some of the issues include how you plan to divvy up ownership percentages, circumstances that affect those percentages (such as one owner quitting and moving to Tuscany to paint), the roles of each founder, salaries and asset and time contributions. This short list is just a starting point.

Set Up a Business Structure 

One of the first things you need to do for your startup is to consult a good Texas business attorney about what kind of structure is best for your business. If you don’t, you could end up paying unnecessary taxes or failing to protect assets when you or your company gets sued. Your attorney will likely advise you to set up a corporation or an LLC, but you still must discuss what kind of corporation or LLC to set up and a myriad of other related issues.

Set a Vesting Schedule 

If you are incorporating, set a vesting schedule that indicates how stock ownership will vest over time to founders, designated employees and investors. Otherwise, an investor could just sell their stock whenever they want and disrupt the company.

Understand Major Tax Issues 

The type of structure you set up for your startup will have a big impact on how you are taxed. When deciding what kind of LLC, corporation or other business structure to set up, be sure you discuss all tax implications with your Texas business lawyer. You will also want to thoroughly understand what you can deduct and depreciate. When tax laws change, you will want to make an appointment with your attorney to see how the changes affect your business. 

Get Your EIN Number

You will need to apply for your EIN number, the employer identification number for your business. To do so, you will need to designate a “responsible party” according to IRS guidelines.

Set Up Your Accounting

You need to decide what kind of tax system you prefer, because it is not always easy to change it later. Also, the type of business structure you choose may limit your choices. Some things to discuss with your business attorney or tax professional are

  • When your fiscal year begins (If you have a seasonal business, you may not want to use the calendar year.)
  • Whether you will be using the cash or accrual method of accounting
  • System you will use to record transactions as well as all other money flowing to and from your business

Protect Your Intellectual Property

For businesses that develop unique products or services (such as software companies), the importance of protecting your intellectual property cannot be overstated. You don’t want to even think of trying to do this on your own. Consult with a seasoned intellectual property attorney to make sure your patents, copyrights and trademarks — the lifeblood of your company — is safe from competitive marauders.

Get All Necessary Licenses and Permits

In the excitement of getting your startup ready to open, it’s possible to overlook applying for licenses, registrations and permits required by law to operate a business. Your San Antonio business attorney can put your mind at rest. Some examples are local business licenses, health permits, building permits or permits related specifically to your industry such as running a manufacturing business or a liquor store.

Check Your Zoning

Nothing would be worse than deciding to open a car wash then finding out your location is zoned residential. Just because there is already a car wash across the street is not enough to show you can open another one. Zoning laws change, and sometimes a city might limit the number of certain types of businesses in a location. Or the other car wash may have been given an exemption. Once again, consult with an experienced San Antonio business attorney to be sure.

Have Important Contracts Drafted

Have your attorney draft important legal contracts before you open the doors of your startup, so you are not tempted to do things on the fly and end up in a legal jam. These contracts may include (among others)

  • Nondisclosure agreements
  • Employment agreements
  • Contractor agreements 
  • Customer agreements
  • Co-founder agreements (as mentioned previously)

Respect Securities Laws

Securities laws protect against fraud and insider trading, and you don’t want to inadvertently cross them. You may be subject to these laws and not even realize it. If you and your cofounders have formed a corporation or even a limited partnership or LLC, you are subject to the structured reporting and filing requirements of federal and Texas securities laws when you sell stock or business interests. Find out if securities laws apply to you, then sit down with your San Antonio business attorney and get a thorough understanding of your responsibilities. You can’t just casually give stock to your brother without following the required protocol. 

Correctly Classify Workers

Clearly, we could write a library’s worth of books on employment laws, so you will need to rely on an experienced Texas employment attorney to guide you. One of the most important things you will need to do is correctly classify your workers. For example, if you hire an independent contractor and treat them like an employee, you can end up owing all kinds of back benefits and wages not to mention penalties.

Prepare Your Employment Documentation

Here is just some of the employment documentation you may need:

  • “At-Will” employment offer letters and complete job descriptions
  • Employee handbook
  • Stock option documents if you have a stock incentive plan
  • Government forms for verification of identity and tax withholding
  • Benefits forms

Include a Terms of Use and Privacy Statements on Your Website

Don’t forget to have these drawn up for your website:

  • Terms of Use Agreement: Lists the terms and conditions for those using your website
  • Privacy Policy: States the personal data you collect from users on your website and how it may be used or sold, including whether you give access to third parties. 

Obtain Insurance

You may need various types of insurance before you open the doors to your startup. Consider: 

  • Liability insurance on your business’s location if customers come on the premises
  • Insurance to cover your premises and assets from theft and destruction
  • Liability insurance for company vehicles or vehicles your employees may use on behalf of your business
  • Product liability insurance if you will be manufacturing hazardous products
  • Health and disability insurance for employees

Consult with an Experienced San Antonio Business Attorney

If you are starting a new business, call the San Antonio law offices of Shann M. Chaudhry Esq., attorney at law, for a free consultation about legal requirements, documents and structures. We can lay out your options and explain what you need to do to minimize risks and taxes, and to stay within the law. Our experienced Texas attorneys provide business planning, estate planning and real estate law services. Contact us at (210) 646-9400 to schedule an appointment.

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