Legal Issues for Startup Companies was a topic of intense interest to participants. The session was held on Monday, June 13 from 1 pm to 3 pm at the law office of Shuchi Batra, PLLC, who presented excellent information for anyone thinking of starting their own business.
Shuchi presented legal information in a clear and concise way and attendees represented many different areas of expertise and industries, including attorneys, software and website developers and social media experts. Some were already in business for themselves and were thinking of restructuring or strengthening their legal situation. Others were just starting out and exploring the possibility to setting up a business.
Shuchi discussed key considerations when forming a business:
• Limitation of personal liability
• Tax issues, including pass-through taxation versus entity as taxpayer
• Management and control, from flexible to more formal arrangements, and
• Complexity and cost
We heard the pros and cons of the following legal structures: sole proprietorships, partnerships, LLCs, C corporations and S corporations. The simplest form, sole proprietorships, affords the business owner with more control, but also more personal financial risk. At the other end of the spectrum are corporations, where personal assets are protected but where there are shareholders, a board of directors, employees, financial backers and strict legal requirements to follow.
Shuchi provided situations that may be avoided with some upfront planning.
One example covered the constraints of having a C corp with majority and minority shareholders, especially when there might be one individual in a privately held company who owns 51% of the stock. This shareholder has the power to influence who sits on the board of directors, and, thus, has control over voting and decisions about distribution of funds. And if the minority shareholder feels oppressed and wants to leave, that person can’t sell their shares on the open market like in a publicly traded company and must, instead, sell their shares to another member who is aware of the situation and may offer less than fair value for the stock.
Nondisclosure agreements, confidentiality agreements and letters of intent/memorandums of understanding were also covered in the session.
There were many interesting and varied questions, and Shuchi answered them all. Questions ranged from detailed S corp responsibilities to intellectual property protection and effect on your personal credit score if your LLC suffers a loss.
Sue Wang, an attorney with the Clarity Law Group, felt that this session provided “great coverage of the basics for anyone starting out.” Sue was especially glad that Shuchi pointed out some great pitfalls. For instance, if you give stock to your employees, they will become minority shareholders and will have shareholder rights that could allow them to sue you or examine your accounting books.
The crowd was responsive and engaged, with everyone obtaining a much more thorough understanding about legal issues that startups face and how to navigate the startup mind field. With so much of DCWEEK spent on new ideas, businesses and ventures, the informed advice and direction provided was refreshingly practical so thanks to Shuchi Batra, PLLC for a thoughtful presentation.
