30 Legal FAQs for Entrepreneurs in Corporate Law

Business Formation

What is the best business structure for my startup?

It depends on factors like liability protection, taxation, and funding needs. Common options include sole proprietorship, LLC, and corporation.

What is the difference between an LLC and a corporation?

LLCs offer flexibility and pass-through taxation, while corporations provide easier access to investors and perpetual existence.

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Do I need to register my business?

Yes, you need to register your business in the state where you are operating and obtain all the necessary licenses and permits.

What are articles of incorporation?

A legal document filed with the state to formally establish a corporation, outlining its structure and purpose.

What is an operating agreement?

An internal document for LLCs that defines ownership and operating procedures, essential for multi-member LLCs.

Corporate Governance

What is the role of a board of directors?

The board oversees the management of the company and acts in the best interests of shareholders.

What are bylaws?

Internal rules governing how a corporation is managed, including procedures for meetings, voting, and officer roles.

Do I need a shareholder agreement?

Yes, it helps define shareholder rights, responsibilities, and dispute resolution methods.

What are fiduciary duties?

Obligations of directors and officers to act in the best interests of the company, including duties of care and loyalty.

Can I be personally liable for company debts?

Generally no, but personal liability can arise if corporate formalities are ignored, or if there’s fraud or misrepresentation.

Contracts and Agreements

What is the importance of a business contract?

Contracts clearly define the rights and obligations of parties, reducing the risk of disputes.

What should a good contract include?

Key terms, payment details, timelines, dispute resolution clauses, and termination conditions.

Can verbal agreements be enforced?

Yes, but a written contract is more precise and enforceable for important transactions.

What is a non-compete agreement?

A contract that restricts an employee or business partner from competing with the company for a specified time and location.

What is the difference between NDAs and non-compete agreements?

NDAs protect confidential information, whereas non-competes restrain competitive activities.

Intellectual Property

How do I protect my business name?

Register your business name as a trademark with the USPTO so others cannot use it.

Distinguish between a patent and a copyright.

Patents. The inventions are protected. Copyrights. Original works of authorship are protected: books, software, for example.

How do I protect trade secrets?

NDAs, limit access to sensitive information, confidentiality policies

What is IP infringement?

The unauthorized use of protected intellectual property such as trademarks, copyrights or patents.

Do I have intellectual property created by employees?

Generally, yes, if within the scope of employment, but independent contractor agreements must explicitly transfer IP rights.

Funding and Investment

What are the legal requirements to raise funds?

Securities laws must be followed, such as filing for exemptions with the SEC for private offerings.

What is a term sheet?

A non-binding letter stating terms of investment, which is about valuation, equity, and investor rights.

Definition of dilution of ownership What is dilution? When the outstanding equity percentage of a current owner is reduced when more shares are issued.

What is the difference between equity and debt financing? Equity: Issuing ownership in exchange for investment. Debt: Financing by borrowing money, which will be repaid with interest.

What is a convertible note? An instrument of loan that converts into equity at the occurrence of specific events, such as a future round of financing. Legal Compliance

What licenses and permits does my business need?

This varies by industry and location; check federal, state, and local requirements.

What is the purpose of a compliance program?

Ensures that your business is in compliance with laws and regulations, minimizing legal risks and penalties.

What is corporate veil piercing?

Courts can pierce the corporate veil and hold business owners personally liable for company debts if they misuse the corporate structure.

What is insider trading, and how do I avoid it?

Insider trading is the use of inside information for stock trades. Create insider trading policies and train your employees.

What to do if a company is sued?

Engage corporate counsel right away; collect relevant documents; and do not make public comments.

These FAQs give entrepreneurs valuable information on corporate law challenges and best practices.

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