Startups: Establishing a Strong Business Foundation

October 23, 2020


When a foundation cracks, the whole building falls. Choosing the right location, materials, and team to build your home’s foundation dictates its future structural stability. The same principles apply to structuring your startup company. Picking the right demographic to target, startup team, and business structure from the start can ensure your business weathers inevitable economic and legal storms. The dedicated lawyers for startup companies at McClanahan Powers, PLLC, can help you build a lasting enterprise in the Commonwealth. Consider connecting with our experienced Virginia and D.C. startup attorneys to discuss the following five principles for establishing a strong business foundation.

Choosing the Right Legal & Investment Structure

All small business entities may seemingly function the same from an entrepreneurial perspective. However, every business structure offered in Virginia serves a unique purpose designed to protect specific business and personal interests. Do not select an entity form based on ease or cost. Instead, your business’s legal foundation must sustain your company, protect your estate, and withstand litigation. Most states, including Virginia, offer the following types of business entities:

  • Sole Proprietorships
  • Business Trusts
  • Limited Liability Companies (LLC)
  • Professional Limited Liability Companies (PLLC)
  • General and Limited Partnerships
  • Registered Limited Liability Partnerships
  • Corporations
  • Benefit, Non-Profit, and Public Service Corporations
  • Professional Corporations

Certain entities, such as LLCs and Corporations, generally protect their owners from personal liability for business debts and lawsuits. However, they can also cost more to form, require additional annual meetings/filings, and have more significant tax obligations. An experienced startup attorney will look at your business goals, analyze potential industry risk factors, and review your assets/liabilities before recommending the best legal and financial structure for your business.

Executing Strong Startup Contracts & Foundational Documents

Whether you need an operating agreement, articles of incorporation, or a partnership contract, these documents will have a significant impact on the way your business is run. Startup documents should provide for every possibility, including provisions for terminating the entity, appointing successors, making critical decisions, removing officers, amending documents, and indemnifying owners for business expenditures. Once you select the right structure for your startup, an experienced lawyer can help you tailor necessary organizing documents to protect your investors, corporate vision, and decision-making authority. The law generally permits founders to modify specific default business provisions with binding contracts drafted by corporate counsel.

Hiring & Retaining the Right Personnel

One person may start a business, but it takes a trusted team to help it grow. Whether you need employees now or anticipate hiring staff in the future, misunderstanding employment laws and employer obligations expose businesses to substantial liability. Startup business counsel should help future employers develop the employment, hiring, benefits, and anti-discrimination policies necessary to protect their companies. An attorney should also draft non-disclosure, confidentially, non-compete, and severance contracts guarding your client lists, trade secrets, and business strategies from competitors.

Additionally, small business owners should consider the serious implications of employee turnover on growing companies. Hiring and training the right staff members and managers now, including offering individual stock options and growth bonuses, could save your business from excessive turnover in the future. Discuss offering competitive salaries, benefits packages, retirement plans, and healthcare options with local legal counsel and drafting anti-discrimination/harassment and positive work environment policies for employees. An attorney can develop employment contracts that attract the right workers but do not financially burden your business. These compensation agreements might include flexible work environments and specialized benefits with salaries that increase with business revenue or loyalty.

Creating Strong Internal & External Policies

Ineffective leadership, poor hiring practices, and bad middle management often lead to hostile work environments, excessive employee turnover, and subpar business performance. Small business owners cannot protect their companies against every hiring mistake, but they can create complaint, feedback, and performance review policies designed to address employment issues quickly. Experienced business attorneys often recommend drafting computer use policies, data privacy agreements, and employee handbooks, setting forth workers’ rights and expectations. By developing a written code of conduct, late-arrival policies, complaint procedures, and other necessary procedures now, companies may prevent employment litigation and gain the right to quickly dismiss managers/staff who engage in illegal or unauthorized conduct. Without these procedures in place, businesses may expose themselves to wrongful termination litigation.
Following the sudden impact of COVID-19, startup lawyers also encourage owners to develop emergency health and remote work procedures.

Preparing for the following unexpected circumstances now could save your business:

  • Natural disasters
  • Mass employee turnover
  • Sudden loss of illness of key personnel
  • Data breaches
  • Illegal behavior by employees
  • External litigation and regulatory investigations
  • Economic downturn

The companies that survived the coronavirus’s economic impact had clear and effective data privacy, health, and telework policies already in place. This proactive preparation allowed these businesses to thrive and quickly address client needs while other companies scrambled to develop essential systems.

Proactivity Protecting Startups from Liability & Litigation

While it’s impossible to prevent all litigation, having the right contracts, procedures, and legal team in place could drastically reduce the time and cost associated with business lawsuits. Well-drafted employee contracts and clear for-cause termination documentation can often quickly resolve wrongful termination litigation. Startup counsel may also help small business founders develop and purchase useful software and management systems that protect data and store detailed records of employee-client interactions. Importantly, startup attorneys can use their litigation experience to help new businesses avoid common legal misunderstandings that often lead to expensive lawsuits. By having the right legal team on your side, you can drastically reduce your startup’s exposure to detrimental intellectual property, employment, and financial litigation.

Start Small Businesses the Right Way with the Help of McClanahan Powers, PLLC

From selecting the right entity and maximizing investment value to creating a safe work environment, consider the benefits of having the startup lawyers at McClanahan Powers, PLLC on your side. Our Virginia corporate startup and general business counsel attorneys can help you build a strong foundation that protects your personal and professional interests as your company grows. Schedule your small business startup consultation today by calling 703-520-1326 or connecting with our Vienna or Pennsylvania Avenue offices online.