In a rush to create a business plan and talk to venture capitalists, entrepreneurs often overlook the legal aspects of starting and growing a business. On November 8th, Professor Constance Bagley shared with a packed room of students the Top 10 Legal Pitfalls of Entrepreneurs. Bagley, who teaches an EC course on the Legal Aspects of Management, identified the following issues.
The Top Ten Legal Pitfalls
10. Failing to incorporate early enough.
9. Issuing founder shares without vesting.
8. Hiring a lawyer not experienced in dealing with entrepreneurs and venture capitalists.
7. Failing to make a timely Section 83b election (within 30 days of issuance).
6. Negotiating venture capital financing based solely on the valuation (think about the scenario that it might fail).
5. Waiting until later to consider international intellectual property protection (most important when it comes to patents, trademarks).
4. Disclosing inventions without a nondisclosure agreement or before the patent application is filed.
3. Starting a business while employed by a potential competitor, or hiring employees without first checking their agreements with the current employer and their knowledge of trade secrets.
2. Ignoring the securities laws and promising more in the business plan than you’re sure you can deliver (need to consider both state and federal laws).
1. Thinking any legal problems can be solved later.
The key takeaway: the legal aspects of a business are a critical piece of the overall plan. Professor Bagley is working with the Entrepreneurship Club to help establish a series of free legal clinics, so stay posted!
