Starting your own business is both difficult and exciting. This is the point in time in which you should lay the proper foundation. However, if you are as focused on tech as most of the developers that I have met, you may have some questions as to how to lay this important foundation. That’s why we have compiled a list of the top 5 tips for starting a tech business.
Here they are:
1. Form a legal entity, such as an LLC or a Corporation. Legal entities offer several advantages, the biggest of them being allowing you to enjoy limited liability from the risks that your company faces. This means that if someone sues your company and wins, they usually cannot obtain your personal assets, such as your house or car. This is also the first step you should take because your business can face liabilities very quickly, sometimes even before you even have clients. Lastly, it is important to note that in most jurisdictions, this step is relatively easy and cheap.
2. Have a lengthy and robust discussion between you and the investors into your business and set the ground rules early. An almost universal truth is that most investors invest the money into your company because they believe in you and your vision. However, it is also an almost universal truth that investors want something in return. The return can range anywhere from equity in your company to paying back the investment with interest. Before you take the money, you should always discuss the returns, expectations and responsibilities that apply both to you and your investor. It would be a very difficult situation if it turns out that your investor wants to be very hands on with your business and you thought that you would just get on a call every month. That is why you should have a robust and thorough conversation with you and your investors that helps establish these rules. After you have done so, proceed to tip 3.
— Agency Attorneys (@AgencyAttorneys) February 18, 2016
3. Have a partnership agreement between you and your partners. Partnerships can sour quickly, especially when money is involved. That’s why it is best practice to have a partnership agreement. This agreement will define how you can add new partners, how partners can leave, what happens if you run out of money and how to solve disputes. Having these conversations early will also help you understand what type of management style each of you prefer and how you prefer dealing with disputes, thus giving you a great glimpse into your partner’s’ minds. Lastly, having everything in writing will prevent the “he said, she said” game when you run into issues in your partnership.
— Agency Attorneys (@AgencyAttorneys) March 1, 2016
4. Put every patent, trademark and copyright in the name of the company. If one of your partners is giving a trademark to the Company that you are both creating, that means that the trademark should be put in the company’s name. This ensures that if one of the partners leave, he or she gets fair payment for the trademark and it ensures that you are able to purchase it, meaning that the partner will not just walk away with the company’s most valuable asset.
5. Have every employee sign an employment contract. Your employees get access to confidential information every day. An employment contract helps ensure that your employees keep that confidential information secret. Furthermore, setting down the expectations and responsibilities of your employees early will help them reach goals and will ensure that they do not diverge from allowed behavior.
— Agency Attorneys (@AgencyAttorneys) March 12, 2016
These top 5 tips are absolutely not the complete compilation of all of the tips that one should follow when starting a tech business. However, these tips will help you lay the proper foundation for your business and will help ensure that the number of risks that you face are reduced. Good luck!
Donata Kalnenaite, Esq.
Bio: Donata Kalnenaite, Esq. is the owner of Agency Attorneys, a Chicago-based law firm that helps protect the work of software development, graphic design and marketing agencies. She takes a collaborative approach on working with her clients, ensuring transparency and that her clients understand every contract that they sign.