DREIESKIVA​|Roald Kvam

For founders brimming with ideas, momentum, and vision, the legal aspects of starting a business can feel like a distraction—or even an afterthought. But the truth is, solid legal foundations are essential to protect your startup, your relationships, and your future growth.

From incorporation and contracts to intellectual property and equity distribution, early-stage legal decisions can have long-term consequences. Addressing them proactively can prevent disputes, attract investors, and enable you to scale with confidence.

This article walks through the legal essentials every startup should understand from day one.

1. Incorporation: Choosing the right legal structure

The first legal decision most founders face is how to structure the company. This affects everything from liability and taxes to fundraising and ownership.

Common options include:

Sole proprietorship or partnership

• Easiest to set up
• No legal separation between you and the business
• Not ideal for scaling or taking on investment

Limited liability company (LLC)

• Offers personal liability protection
• Flexible tax treatment
• Suitable for small businesses or lifestyle ventures

Corporation (C-corp or S-corp in the U.S.)

• Separate legal entity
• Preferred by investors (especially C-Corp for startups seeking venture capital)
• Allows for stock issuance, equity plans, and international expansion

Key considerations:

• Incorporate early to separate personal and business liabilities
• Choose a jurisdiction (e.g., Delaware in the U.S., due to startup-friendly laws)
• File appropriate documents and appoint a board of directors if applicable

2. Intellectual property (IP): Protecting your ideas

Your startup’s most valuable asset might not be your product today—it might be your code, your brand, or your unique approach to solving a problem. That’s where IP comes in.

Types of intellectual property:

Trademarks

• Protect brand names, logos, slogans
• Register with national IP offices
• Helps you stand out and avoid brand confusion

Copyrights

• Protect original works like software code, designs, marketing content
• Automatically granted upon creation, but registration adds legal strength

Patents

• Protect inventions and processes
• Requires a formal, complex application process
• Valuable for tech, biotech, or product-based startups

Trade secrets

• Proprietary methods, algorithms, customer lists not publicly disclosed
• Require confidentiality agreements and internal controls

Best practices:

• Conduct an IP audit early: What needs protecting?
• Register trademarks and domains ASAP
• Use NDAs (non-disclosure agreements) for sensitive information
• Ensure all IP created by employees or contractors is legally assigned to the company

3. Contracts: Clarifying rights and responsibilities

Verbal agreements can lead to confusion—and worse, legal disputes. Contracts provide clarity, structure, and enforceability in your business relationships.

Core startup agreements:

Founders’ agreement

• Lays out roles, responsibilities, decision-making, and equity split among co-founders
• Covers what happens if a founder leaves (e.g., vesting, buyout rights)

Employment & independent contractor agreements

• Clarify scope of work, pay, IP ownership, confidentiality, and termination terms
• Essential for full-time hires, advisors, and freelancers

Non-disclosure agreements (NDAs)

• Protect sensitive information when discussing partnerships, pitches, or product plans

Terms of service & privacy policies

• Required for customer-facing products (especially digital platforms)
• Must comply with data privacy laws (e.g., GDPR, CCPA)

Investor agreements

• Term sheets, SAFE notes, convertible notes, shareholder agreements
• Define investment terms, valuation caps, control rights, and dilution

Tips:

• Use lawyer-reviewed templates (not random downloads)
• Tailor contracts to specific relationships and jurisdictions
• Be transparent and fair—trust is easier to build than repair

4. Equity distribution: Getting it right from the start

Equity is your startup’s currency—and how you distribute it early can impact motivation, retention, and fundraising.

Key concepts:

Cap table (Capitalization table)

• A spreadsheet showing who owns what percentage of the company
• Tracks shares allocated to founders, employees, advisors, and investors

Founder equity split

• Should reflect each person’s contribution, commitment, and risk
• Avoid «equal split by default» unless truly justified

Vesting schedules

• Equity is earned over time (e.g., 4 years with a 1-year cliff)
• Protects the company if someone leaves early

Stock options & ESOPs

• Used to compensate employees with potential upside
• Option pool must be set aside early, especially before funding rounds

Investor equity

• Dilution must be understood and modeled in advance
• SAFEs and convertible notes delay valuation until a later funding round

Best practices:

• Maintain an up-to-date cap table
• Use a lawyer or cap table management tool (e.g., Carta, Pulley)
• Communicate equity terms clearly with team and stakeholders

Bonus: Compliance & risk management

As your startup grows, legal requirements grow too:

• Taxes: Register for federal, state, and local taxes. Stay compliant with payroll and sales tax obligations.
• Licenses & Permits: Depending on your industry, you may need operating licenses.
• Data Protection: If you handle personal data, ensure GDPR, CCPA, or other regulations are followed.
• Employment Laws: Be aware of minimum wage, overtime, anti-discrimination, and termination policies.

When to hire a lawyer

Not everything requires a lawyer, especially early on. But legal help is critical when:

• Forming your company and drafting founder agreements
• Raising capital or issuing equity
• Filing patents or trademarks
• Facing potential legal disputes

A good startup lawyer is a long-term partner—not just a service provider.

— — —

Legal doesn’t have to be overwhelming or expensive—but ignoring it can be. The most successful startups treat legal foundations as strategic assets. They provide protection, attract trust from partners and investors, and pave the way for sustainable growth.

Startup legal checklist:

• Incorporate with the right structure
• Protect your intellectual property
• Create strong contracts and agreements
• Manage equity and vesting clearly
• Stay compliant with taxes and regulations

Think of legal as your startup’s seatbelt. You might not need it every day—but when things get fast, risky, or messy, it’s what keeps you safe and moving forward.

In entrepreneurship, the best time to get legal clarity is early. The second-best time? Right now.