It’s exhilarating to start a business: to build something from scratch, chase a vision and still tell yourself you’re a founder. Sure, there’s room for creativity and caffeine fueled work days, for sure, but let’s face it, there’s an uglier side to it too… compliance.
Those maze of rules and files and obligations can be overwhelming. Especially when there’s already product development and hiring and money to raise. “Did I miss something crucial?” you have ever wondered. It’s not you.
That’s fully why this compliance checklist exists to help early stage founders like you stay in line without losing deep sleep.
1. Pick the Correct Business Structure
The first step really as far as compliance for startups goes, is how legally you structure your business. LLC? Corporation? Sole proprietorship? There’s tax, liability and all sorts of paperwork involved with each option.
Take the LLC, for example which startups often prefer for its flexibility and its shielded from liability. If, however, you’re intending to seek venture capital, investors typically prefer a Delaware C-Corp. Don’t know what path your goals fit in? These are things that a quick consult with a startup lawyer or accountant can get you so far.
2. Use The Documents to Register Federal and State Agencies
After you have selected your structure, your next job is to have your startup register with the appropriate agencies. That’s articles of incorporation or organization with your state. Then apply for an Employer Identification Number (EIN) with the IRS, even if you don’t have employees, yet.
You may also need local business licenses and whatnot depending on where you are operating. And yes, these can range by town and even county. So you’ll want to double check your local government website again.
3. Open a business bank account
Mixing personal and business finances is the equivalent of putting oil and water in the same bottle, it’s sure to create confusion at home (and potential legal trouble down the road). Opening a separate business bank account is one of the easiest of these wins. Not only can it help you keep expenses and revenue in check, but it helps to solidify the credibility you have with vendors and investors.
Bonus tip? Pick a bank that meshes nicely with accounting software. Come tax season it’ll save you hours.
4. Protect Your Intellectual Property
If you’re building something new, an app, a product, a brand, you need to file for protection. File trademarks on company name and logo. If you’re building proprietary technology, the thought of a patent might be interesting.
However, skipping this step will cost you big down the road. Couldn’t you just picture someone else taking your brand name up as you’re about to launch?
5. Understanding Tax obligation
Although taxes aren’t much fun, they’re a necessary part of life.” Like all businesses, the startups must follow federal and state (and sometimes even local) tax requirements. Income tax, employment tax, that’s the broad category, that’s part of it and often not fully understood that income tax and employment tax, if you have employees or own your own business you have employment tax duties and if you’re selling products and services sales tax.
Create the system to keep on top of deadlines, whether that’s quarterly estimated taxes or year end returns. It may very well be a part time bookkeeper or life well cloud based accounting software.
6. Proper Legal Agreements Draft
Formal contracts, they might sound boring in startup land but, but you need them. Founder agreements, NDAs, employment contracts, contractor agreements, think.
First, if you’re sourcing co-founders, write up something so that it’s out on the table: what are roles? What is equity? When does it vest? What are exit clauses? That way you could prevent misunderstandings, or worse, down the road.
7. Data Privacy and Cyber Security
Most (dare I say all?) startups will collect user data (of some type), if you are in this position, you also have the responsibility of keeping that data protected. Data protection laws around the world are tightening, from GDPR to the California Consumer Privacy Act (CCPA).
Make sure you have a clear privacy policy, make sure your website is secure and don’t collect information you don’t need to. Want more peace of mind? Before hackers do, a cybersecurity audit helps you see the gaps.
Final Thoughts
It’s still fast life in a startup. However, while cutting corners on compliance can kill speed bumps, legal risks and fundraising roadblocks, you do so at your own risk. Luckily, we don’t have to work that out by ourselves.
What this checklist provides is a strong base from which to build. If you closed your seed round or were in stealth mode, staying compliant is simply the smartest thing you can do. Are you ready to build your dream… but the right way? It’s a good idea to begin with compliance.
