Editor's Note: This is a guest post by Dan Unter, attorney at Cleantech Law Partners, a law firm that serves the unique legal needs of renewable energy and cleantech companies in the United States and around the world. Mr. Unter can be contacted at dunter[at]cleantechlawpartners.com
As a lawyer working for many many startups, I'm often asked for the logical progression from an idea, product, or service to a business. Below you'll find a summary version of this roadmap. Look for future guest posts where I'll expand upon these areas.
- Business Plan. I see this countless times – a business without a proper plan outlining the issues, challenges and reasonable numbers will flounder. It does not have to be done by a professional, just an honest assessment that has been reviewed by at least someone else other than you.
- Idea Protection. You do not have to spend $30,000 on a patent, and you don’t have to keep your idea under your mattress and never tell anyone about it, but you should take steps to protect yourself. First, use a nondisclosure agreement (NDA) for potential investors/partners/suppliers/etc., and only give a digest of your idea to people you are just meeting. The NDA is for the next phase of discussions. Loose lips do sink ships, but tight lips also don’t help. Find a balance.
- Contracts. Put all people working on the business under contract (employment, consulting, etc) which should contain provisions including "work for hire," confidentiality and limits on liability provisions and clearly define roles and responsibilities.
- Value your company or product or services. This is a tough step to do, but a necessary step as you go out and either seek investment or customers. When I set up companies for clients, valuation is always a huge issue. It should be noted, if you don’t already know, that valuation goes UP after you sign customers or bring on key people.
- Form a Company. The limited liability aspect of a corporation or LLC is appealing, but expensive. A regular sole proprietorship or partnership with the right amount of insurance can give you the same protection in many cases. This will be the subject of a future post.
- Operating Agreement. Define who owns what and the roles/responsibilities. No matter what type of company you form, this document is a necessary component to entities of two or more people. It should outline contributions, duties, ownership share, voting rights and many other items that will help you run your business with as little confusion as possible.
Again, this is from a lawyer’s perspective. So, essentially these are the checkpoints that I usually hit, which may change depending on the situation. For the most part, documents like the ones outlined above start or spur the essential conversations that all companies must have, no matter how good the idea is or how much (or little) money is behind it. Hopefully they do the same for you!
Disclaimer: Legal information is not the same as legal advice — the application of law to an individual's specific circumstances. Consult a lawyer if you want professional assurance that any information, and your interpretation of it, is appropriate to your particular situation.