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How business startups can avoid litigation

The business world sometimes runs at lightning speed, especially in the high-tech industry. Tech startups constantly must think about keeping up with competition and tech innovations, which may lead entrepreneurs and startup owners to put off important steps to protect their business from litigation. However, that often leads to problems down the road.

For startups, reducing the risk of facing a lawsuit is especially important. Often, a business dispute that ends up in court can kill a new business. Too much time and money have been spent on resolving the dispute and that affected the business’ bottom line.

To avoid that, business startup entrepreneurs and owners should work with a business law attorney early on, ideally before launching the business, in the following areas:

  • Business formation and partnership agreements
  • Buy-sell contracts or agreements
  • Employee contracts and handbooks

Business formation and partnership agreements

An experienced business law attorney can guide you as you decide what form of business you will launch. Will this be an LLC? A corporation? A nonprofit?  A sole proprietorship? Each will affect how you structure your business, your business taxes and how much risk you personally take on through ownership.

If you have a partner (or two or three) in your business, you’ll also want to create a partnership agreement. This agreement should detail the following:

  • how much each partner owns of the business
  • what will happen if one person (or more) decides to leave the business—how another partner could buy them out if needed or how to terminate the agreement
  • what management duties each partner will have or what their specific role in the business is

Buy-sell contracts or agreements

Whatever type of business your startup is, you will be offering goods or services (or both) as part of your business. Whatever type of purchase agreements or sales contracts you will need potential customers to sign should be reviewed by legal counsel. You want to make sure your business interests are best protected in these contracts and agreements. They need to address under what circumstances a purchase agreement, work agreement or product purchase might be voided.

Employee contracts and handbooks

Once your business is ready to hire employees, you will need employment contracts for them to sign. In the startup world, many of these include nondisclosure and confidentiality clauses—to protect whatever trade secrets or details about a new product or innovation your company is working on.