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Startups Shouldn’t Take Shortcuts

When it comes to the early stages of a business, entrepreneurs often take shortcuts. Creating a product and establishing a client base give way to many legal matters. Whether the business is a success or a failure, money ultimately complicates everything.

Screen Shot 2015-06-24 at 4.00.43 PMWhat can go wrong and how can you protect yourself? Here are three tips:

1) Trademark – One of the corners most often cut by startups is filing for their trademark. No matter how unique you think your name is, the United States follows the “first to file” rule, meaning that the first person to apply for a trademark has all legal rights to it. Even if a copied trademark was an accident, business owners could face serious prosecution, especially if the company they’ve copied is bigger or more established than their startup.

In South Carolina, a trademark must be filed with the Office of the Secretary of State, and the mark must already be in use in the marketplace before it can be applied for, whether it’s a product or a service. Trademarks must be renewed every five years to ensure they are still in use, so it greatly benefits small business owners to file for one as soon as possible.

2) Business Registration – In South Carolina, all business opportunities must be registered with the Secretary of State before business owners can place advertisements or speak to potential investors or customers. To obtain a general business license in the state means even more steps. Carefully research what forms must be filled out for your business to be registered.

3) Founders’ Agreement – A founders’ agreement outlines equity ownership and vesting interest and the roles and responsibilities of you and your partners. When you develop a business plan or create a product, you are creating intellectual property.

It may be an uncomfortable conversation, but what happens when someone exits the company? What about the roadmap for shareholders? Who owns the IP?

Like it or not, a new business is like a marriage. You never envision separating, but it does happen.

If you are a partner or shareholder with concerns that your money, time or reputation may be at stake, the Law Office of W. Andrew Arnold represents clients in a vast array of disputes involving contractual obligations, fraud and financial wrongdoings. Begin with a consultation by calling 864-242-4800.

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