How Can 2 Founders Protect Themselves When Starting a New Company?

Starting a new company is an exciting endeavor, but it can also come with its fair share of challenges. Two key areas founders must focus on to protect themselves are external parties and internal conflict. This guide provides actionable steps to ensure both aspects are covered effectively.

Protection from External Parties

A legal entity, such as a limited liability company (LLC) or corporation, is essential for providing a shield between you and your business. While you will always bear some liability, setting up the right legal structure can significantly mitigate your personal risk. For instance, under an LLC or corporation, your personal assets are generally not accessible by creditors of the business. This separation is crucial in protecting your personal wealth and peace of mind.

To achieve this protection, it's crucial to consult with a lawyer. They can help you select the appropriate legal structure based on your specific business needs, such as the industry you are entering and the nature of your business operations. Additionally, they can guide you through the necessary legal proceedings, including drafting founding documents like the Articles of Incorporation or Operating Agreement, which include provisions for asset protection and liability.

Protection from Internal Conflict

Internal conflict is inevitable in any business venture. Cooperation, clear communication, and setting expectations are the cornerstones of a successful partnership. When founding a company, it's crucial to establish a solid foundation for collaboration. This begins by clearly defining each founder's roles and responsibilities upfront. This can be accomplished through written agreements that specify contributions, decision-making processes, and profit-sharing models.

Having these expectations in writing is crucial and can be facilitated by legal counsel. A lawyer can provide templates and guidance, ensuring that all aspects of the agreement are legally sound and enforceable. It's also wise to include a dispute resolution clause, which can outline how conflicts will be handled, possibly through arbitration or mediation. This helps to maintain a professional and respectful atmosphere, even during disagreements.

Communicating Constantly

No matter how good your initial setup, circumstances can and will change over time. Regular communication is key to maintaining a harmonious and productive partnership. Regular meetings, whether weekly or bi-weekly, should be scheduled to discuss business progress, personal issues, and any challenges ahead. Open communication not only helps to build trust but also ensures that both founders stay on the same page.

To enhance communication, consider utilizing digital tools that facilitate seamless collaboration. This could include project management software, shared calendars, and communication platforms like Slack or Microsoft Teams. These tools ensure that both founders are consistently informed and engaged, which is vital for long-term success.

Conclusion

Starting a new company is a journey filled with opportunities and challenges. By protecting yourself against external parties and internal conflicts, you can ensure that your venture has a strong foundation. Consulting with a lawyer is the cornerstone of this process. They can provide the necessary legal framework and guidance to help you navigate these potential risks. Remember, the quality of your partnership is as important as the business itself. Establish clear expectations, communicate effectively, and take proactive steps to safeguard your start-up.