The Ultimate Startup Legal Checklist: 10 Steps to Protect and Scale Your Business

Launching a startup is exciting. But amidst all the hustle, one area that often gets overlooked—until it’s too late—is the legal foundation.

Failing to address key legal issues early on can derail your startup, fail to attract investors, or even lead to years of lawsuits.

This startup legal checklist will guide you through the critical steps you need to take to secure your startup’s future and maximize its potential.

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Why Legal Matters From Day One

The right legal groundwork:

Attracts Investors: A clean legal framework makes your startup an attractive prospect.

Protects Your Assets: Your intellectual property (IP) and brand are your lifelines.

Avoids Costly Mistakes: Legal compliance saves you from fines, lawsuits, or shutdowns.

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The Essential Startup Legal Checklist

1. Incorporate the Right Way

Choosing the correct legal structure is crucial for tax efficiency, liability protection, and scalability. Your options include:

• LLC (Limited Liability Company): Great for simplicity and protection.
• C-Corp: Preferred for startups seeking venture capital.
• S-Corp: Offers tax benefits for smaller businesses.

Pro Tip: If you plan to raise funds, go for a C-Corp—it’s investor-friendly and makes equity distribution easier.

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2. Draft a Rock-Solid Founder Agreement

Founders often start with verbal agreements, but this can lead to major conflicts down the line. A founder agreement should cover:

• Roles and responsibilities.
• Equity splits and vesting schedules.
• Decision-making processes.
• Exit strategies if one founder leaves.

Tip: Use a vesting schedule with a cliff (e.g., 4 years with a 1-year cliff) to lock in founders and key people. Ensure all founders are fully motivated and committed.

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3. Register Intellectual Property (IP) Early

Protecting your IP ensures your brand and innovations stay yours:

• Trademarks: Protects your brand. Register your logo, name, and slogan.
• Patents: Protects your technology. Claim your inventions.
• Copyrights: Protect written content, software, or other creative works.

Did you know?: As of Budget 2024, businesses can immediately deduct 100% of the capital acquisition costs of certain capital assets, including patents, under Class 44 property.

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4. Set Up Contracts for Everything

Contracts are the backbone of any business relationship. Make sure you have solid templates drafted in your favor.

Common agreements every startup needs:

• Employment Agreements: Protect confidential information and establish clear roles.
• NDAs (Non-Disclosure Agreements): Keep your ideas and trade secrets secure.
• Customer/Client Contracts: Clearly outline deliverables, payment terms, and liability limits.

Tip: ALWAYS make your first offer. Why? Anchoring effect. Never give up the opportunity to control the terms and conditions.

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5. Comply With Employment Laws

If you’re hiring, control the relationship with:

• Offer Letters and Employment Contracts: Clarify at-will employment and job responsibilities.
• Independent Contractor Agreements: Avoid misclassifying workers to prevent IRS penalties.
• IP Assignment Agreements: Ensure all intellectual property created by employees or contractors belongs to the company.

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6. Organize Your Equity and Cap Table

Whether you’re bootstrapping or planning to raise capital, your equity structure must be airtight. You may need

• Stock Option Plans: Attract top talent with equity incentives.
• Cap Table Management: Track ownership percentages and dilution during fundraising rounds.

Check out easy tools like Carta or Pulley to streamline cap table management.

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7. Ensure Tax Compliance

Startups often miss key tax deadlines, which leads to fines. Avoid this by:

• Registering for an EIN (Employer Identification Number) with the IRS.
• Filing for state and local taxes.
• Understanding your sales tax obligations.

Pro Tip: Take advantage of tax credits like the R&D Tax Credit for startups developing innovative products.

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8. Create a Privacy Policy and Terms of Service

If you’re collecting user data or running a website, legal compliance is non-negotiable:

• Privacy Policy: Explain how user data is collected and used.
• Terms of Service: Set clear rules for users and limit your liability.

Check out online generators like Website Policies to generate legally compliant policies.

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9. Prepare for Fundraising

When approaching investors, ensure your legal and financial house is in order:

• Keep your cap table updated.
• Prepare for Due Diligence.
• Consider using a SAFE (Simple Agreement for Future Equity) or convertible note for early-stage fundraising.

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10. Get Business Insurance

Protect your startup from unforeseen liabilities with:

• General Liability Insurance: Covers accidents and injuries.
• Errors & Omissions Insurance: Ideal for service providers to cover mistakes.
• Cybersecurity Insurance: Protects against data breaches.

Hack: Many providers offer startup bundles that include multiple types of insurance at a discounted rate.

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Startup Legal Checklist: Quick Recap

Here’s your checklist for reference:

1. Incorporate your business (LLC, C-Corp, or S-Corp).
2. Draft a founder agreement.
3. Protect your IP (trademarks, patents, copyrights).
4. Set up airtight contracts.
5. Comply with employment laws.
6. Organize equity and cap table management.
7. Stay tax compliant.
8. Create privacy policies and terms of service.
9. Prepare for fundraising with clean legal documents.
10. Get business insurance.

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Stay Proactive, Not Reactive

Legal issues are easier—and cheaper—to prevent than to fix. Save this checklist and make sure you cross out each essential step. Remember: you’re not just protecting your startup; you’re setting it up to attract investors and scale.

Need help getting started? Download our free legal templates crafted by attorneys.

Visit LawHax to steal more legal hacks.

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