Founders love to code, design, and sell. They hate legal paperwork. But ignoring the legal side of your business is like building a skyscraper on quicksand. One wrong move in the early days can make your company uninvestable or, worse, result in you losing ownership of your own invention. Use our Legal Launch Checklist to ensure you don't miss critical steps.
1. The "Handshake" Equity Deal
You and your co-founder agree to split the company 50/50 over a beer. No paperwork. Six months later, your co-founder quits. Guess what? They still own 50% of your company. Forever. Before partnering up, assess compatibility with our Founder Fit Score.
The Fix: Vesting Schedules
Always implement a 4-year vesting schedule with a 1-year cliff. If someone leaves before a year, they get nothing. This protects the company from "dead equity."
2. Missing the 83(b) Election
This is the most expensive piece of paper you will ever forget to file. When you get your founder stock, it has a value of near zero. If you file an 83(b) election with the IRS within 30 days, you pay tax on that zero value.
If you forget? You pay tax on the value of your stock *as it vests*. If your company becomes worth millions, you could owe hundreds of thousands of dollars in taxes on stock you haven't even sold yet.
3. The "Zuckerberg" Problem (IP Assignment)
Did you write some code for your startup while using your current employer's laptop? Or on their WiFi? Or during work hours? Technically, your employer might own your startup.
The CIIAA
Every founder and employee must sign a "Confidential Information and Invention Assignment Agreement" (CIIAA). This document assigns all IP created for the company *to* the company. Without it, investors won't touch you.
4. Misclassifying Contractors
You hire freelancers to build your MVP because it's cheaper than hiring employees. You tell them when to work, provide their equipment, and manage them closely. Congratulations, you just committed employment fraud. Understand the full costs with our Hidden Costs Calculator.
Governments are cracking down on this. If you treat a contractor like an employee, you owe back taxes, benefits, and massive fines.
5. DIY Legal Docs
Downloading a "Series A Term Sheet" template from the internet is like doing your own surgery. One missing clause about "liquidation preference" or "anti-dilution" could cost you millions down the road.
Use platforms like Clerky or Stripe Atlas for standard incorporation, but for anything custom, pay a lawyer who specializes in startups. It's cheaper to pay $5k now than $50k later to fix the mess. Our Risk Assessment tool helps you identify potential legal and business risks early.