Worst Legal Mistakes Startups Make
When you decide to launch your New York startup, your attention is focused on creating the perfect product, hiring the best employees, and finding office space in just the right location. Legal matters are the last thing on your mind. However, legal matters ignored in the beginning may cost you more in the future. These are some of the worst legal mistakes startups make in New York and how you can avoid them.
Choosing the Wrong Legal Structure, or No Legal Structure At All
One of the first legal mistakes startups make is choosing the wrong entity structure for their New York startup. Consult with a startup lawyer to determine if an S Corp, C Corp, Limited Liability Company or Limited Liability Partnership fits your startup’s needs. Additionally, the state where you incorporate will also be a significant choice; is it a Delaware-C-Corp, New York-LLC, something else?
Each option has its pros and cons, and certain liability protections that protect your assets from your business liabilities. While this may seem like a simple or unimportant decision, choosing the wrong entity structure, in the beginning, could cost you more money in the future.
Failing to Understand Employment Laws
Another one of the legal mistakes startups make is failing to understand federal and state employment laws. Good employees can be an excellent asset for your startup, but improperly paying them or misclassifying their employment status, can lead to costly litigation later. Federal minimum wage is $7.25 per hour, but, as of December 31, 2018, New York state minimum wage is $11.10 per hour and $12 per hour on Long Island and in Westchester County. If your startup is in New York City, the minimum wage is $13.50 per hour if you have ten or fewer employees, or $15 per hour if you have 11 or more employees.
Additionally, all non-exempt employees in New York must be paid at one and one-half times their regular hourly wage for any time worked above 40 hours per week. You do not have to pay overtime if they work more than eight hours in one workday or if they work on a Saturday or Sunday.
The “gig-economy” has brought a host of issues surrounding the employee vs. independent contractor debate. Generally, an employee under New York Law: (a) regularly come to the office; (b) works 40(+) hours a week; (b) receives a salary and benefits; (c) reports to internal management; and (d) produces work under the direct supervision of the company. Generally, an independent contractor works with a company, but is not provided benefits, has more autonomy for their work, and does not report to management or come into the office regularly (if at all). Some states are trying to extend certain rights to independent contractors. It’s essential to be aware of any changes to these laws.
Losing the Rights to Your Intellectual Property Before It Materializes
Your Intellectual Property (IP) is your startup’s most valuable asset. Some of your best ideas may have been sketched out on a napkin while bouncing theories off your friends. However, without proper protection, these ideas are easily stolen. This is easily one of the worst legal mistakes startups make. Startups must properly register, maintain, and protect their copyrights, trademarks, and patents protect your ideas from infringement and should be. Our startup lawyers can assist you in filing for IP protection and can refer you to an experienced patent attorney.
Additionally, your startup needs: (a) an IP Assignment to make sure the startup owns the founders’ IP, and (b) Non-Disclosure Agreements (NDA) to protect confidential information and trade secrets. An NDA generally protects your startup from founders and employees from taking your ideas to your competitors.
Protecting Your New York Startup
From the beginning of our representation, our startup lawyers will provide your startup with rock-solid legal solutions. We offer cost-effective startup legal services that are both personal and flexible. Available services include company formation, IP protection, foundation contracts (including NDAs), and advising on regulatory matters.
Quality legal representation means that you can focus less on startup legal matters and more on the day-to-day. Contact USA startup lawyer today to learn how we can help your startup avoid costly legal mistakes.