Below are three of the most common mistakes I see founders make when launching their business.

• Not Considering “Breakup” Scenarios. Founders usually are on the same page when they start a company – they are spending a significant amount of time and resources with their co-founders and without a considerable amount of trust among one another, it would be difficult to get a company off the ground.  That being said, too often founders mistake that level of camaraderie for a potentially false sense of hope that the founders will all remain on the same page, with the same level of dedication to the company, for years to come.  You should discuss with your counsel practical, common concerns relating to the launch of your business and how they can be addressed – for example, how do you want to address a situation where one of your co-founders wants to leave the company, moves away or simply has lost interest in spending time on scaling the business?  Do you want to be able to buy him/her out (a “call right” or “redemption right”)?  Does the departing founder expect to be able to require that the company buy him/her out in certain situations (a “put right”)?  How will the purchase price be determined in those situations?  Does it have to be paid in one lump sum or can it be paid over time?  Or what if a founder wants to transfer some or all of his/her shares to a third party?  Should that be allowed or should there be any restrictions, such as he/she has to offer it to the company and the other members first, before offering it to a third party?  These are all common questions that many founders fail to discuss upfront, leading to costly and contentious issues when they come to a head months or years later.
• Not Thinking Through Governance Issues. Relatedly, when co-founders form a company, they may initially have the same views about whether to proceed with an action (e.g., acquiring assets, hiring key employees, taking on additional capital expenses, etc.).  However, as time goes on, founders’ views can diverge and disagreements may arise.  Too often, founders do not consider in advance how to address those disagreements – including failing to address how deadlocks among the members or managers should be handled (i.e., if there are 2 directors and decisions are to be made by majority consent, what do you do if one director wants to take the action and the other does not?).  On the other hand, situations may arise where an individual is seeking to acquire a minority interest in a business, but does not know what questions he/she should ask and what minority member protections would be standard to negotiate (i.e., consent or veto rights for certain actions).  It is imperative to have an attorney on your side who has been through these situations before and knows how to effectively – and efficiently – negotiate for protections in your favor.
• Not Securing Intellectual Property.  For many startups, intellectual property assets are the core of the business.  Unfortunately, founders often fail to protect their most valuable assets.  In particular, founders frequently use freelancers to help create the company’s intellectual property, but forget to have those freelancers sign a Confidentiality and Inventions Assignment Agreement.  Without having proper documentation in place whereby a freelancer assigns all of his/her right and title in the intellectual property to the company, the company is at serious risk that the intellectual property it thinks it owns is actually owned by the freelancer (and not the company).  You should talk to your counsel about the relatively simple forms that they can provide you with to try to ensure that any such intellectual property is properly assigned to, and accordingly owned by, the company.  In addition to that, there is a risk that the founder – who may not have the time or resources to review the nuanced language in an agreement – may sign an agreement that, unbeknownst to the founder, allows third party developers and consultants to retain ownership of IP that the startup has commissioned.  IP ownership provisions can be complicated, and it would serve founders to have their counsel review those provisions to ensure that what the founder thinks he/she is paying for – and what IP rights he/she thinks will be retained by the company – are, in fact, actually reflected as such in the agreement.

^{This content is for information purposes only and no legal advice is being provided in connection with the content on this page. The views or opinions expressed here are the author’s own and do not constitute the view or opinions of Moses & Singer LLP or of any of its members.}