• Seven Legal Isuues Facing Startup Software Companies
  • December 29, 2016 | Author: James H. Gulseth
  • Law Firm: JGPC Business & Corporate Law - Pleasanton Office
  • You have an idea for a new software program and a passion for business, but will that be enough for you and your software startup company to succeed? Regardless of the contributions by friends and family, your decision to form a software company will cause you to confront several significant legal issues before your startup will achieve stability and success. While many of these issues cannot be avoided, they can be more easily and successfully navigated with the help of a startup business attorney.

    Top Seven Legal Issues You and Your Software Startup Will Need to Address

    Entrepreneurs looking to start a software company will need to be prepared to address:

    • Issue: What business entity will you create?

    Why it’s important: The business entity you choose (whether an LLC or corporation, for example) can have important tax consequences and will determine whether you may be personally responsible for your business’s debts and obligations. The type of entity used and how it is structured will also dictate from whom you will be able to raise capital and how much money you will be able to raise.

    • Issue: How do you name your startup?

    Why it’s important: Your business’s name must not only be sufficiently different from existing businesses, but it must also adequately describe your business as a software company. In addition, you may need to add “LLC” to your business’s name if you choose to form a limited liability company and you may want to add “Inc.” to the name if you are using a corporation.

    • Issue: What is the management and ownership structure?

    Why it’s important: If you and a friend are starting this software company together, then you will want to spell out what role each of you will play in the business’s operations. If you intend on sharing profits and/or obligations in any manner other than 50/50, this should be in writing as well. If you intend to attract outside third party investors, the management and ownership structure must be designed to accommodate these investors.

    • Issue: Where will your investment capital come from?

    Why it’s important: The investors who give you and your startup the capital you need to begin operations should not only have the assets you need but should also (ideally) have some experience or expertise in the technology industry as well. This information and experience can prove invaluable in avoiding potential pitfalls and snares your business may encounter.

    • Issue: How will you protect your software IP and other creations?

    Why it’s important: You will need to protect your software and related products against unfair competition and infringement. This means you may need copyrights (for written manuals and/or codes), trademarks and/or trade names (to protect your business name and logo), and/or patents (to protect your ideas and inventions).

    • Issue: Are you using independent contractors or employees?

    Why it’s important: If you enlist another person’s help in running your business, be certain you do not treat them as an employee unless you want to be liable for their actions and intend on providing them with the benefits and protections required by the law.

    • Issue: What happens to your business if something happens to you?

    Why it’s important: Unless you are starting a sole proprietorship, you may need to create a buy-sell agreement and/or update your own personal estate plan so others know how your business will continue following your death or incapacitation.


    This article was originally published on JGPC.com.