The Role of Corporate Law in Startups

Written by: Caroline Kim

December 21, 2024

The mere term “corporate law” has such a strong presence but can be a very complex and wide ranging term. Georgetown defines this term as follows: involves handling a wide range of legal and business issues… they counsel clients and handle transactions including negotiation, drafting, and review of contracts and other agreements. This intersection of law and financial business is where my passions lie, and where I strive to lead a career in. While corporate law is relevant to many different instances, it is notably significant in business startups setting up the company to succeed. Guidance from a corporate lawyer can be key to a company’s success by protecting the business from legal risks, building a reputation, safeguarding intellectual property, meeting obligations, staying ahead of regulatory changes, and more (Global People Strategist). Today, we’ll discuss in depth these different components and how it can influence a startup. 

Corporate Law can impact startups in legal structure, intellectual property protection, compliance with regulatory requirements, funding and investment, and dispute resolution in legal challenges (Legal Eye). Choosing the correct legal structure is the first step in a startup, laying out the choices of a sole proprietorship, partnership, limited liability company, or a corporation; this initial decision can influence the growth and stability of the company, taxing, funding, and personal liability (Legal Eye). Sole proprietorship provides the least protection in terms of personal assets but can most easily set up, while partnerships have a little more protection on assets. Limited Liability Companies are the next step up as they have more flexibility and protection on personal assets. Corporations provide the highest amount of protection among these different choices, but may have more regulations and requirements such as higher taxes (Legal Eye).

Intellectual property is such a key detail to protect in startups, and corporate law can set up methods to protect it through patents, trademarks, copyrights, and trade secrets. While these various methods hold a similar overall purpose, there are a few key differences worth noting, According to Legal Eye, patents limit the use and sales of a specific invention to the inventor for a set period of time; copyrights are similar to patents in that they protect such as written works and art. Trademarks are more specific to slogans and logos, allowing for a company to hold a unique representation (Legal Eye). Trade secrets are slightly more set apart from these other intellectual property protection methods as they have more to do with interaction; trade secrets protect business information such as manufacturing and customer lists to allow for competition (Legal Eye). 

In the field of business, there are numerous regulations that businesses must comply with, which is another instance where corporate law can be helpful. These regulations can involve permits, employment laws, data protection, and environmental regulations. According to Legal Eye, select operations will require licenses for permits while there are general employment laws, data protection regulations, and environmental regulations that must be adhered to. 

Funding and investments are crucial to a business’ growth, but along with it can come a handful of legal matters such as shareholder agreements, stock options and equity compensation, and securities regulations. According to Legal Eye, shareholder rights outline the duties and rights of shareholders such as voting rights. Stock options and equity compensations can be a significant part of startups, and understanding the arrangements fully can be much easier with a corporate lawyer on your side (Legal Eye).

Last but not least, corporate lawyers work to resolve the disputes and legal challenges that may arise later on in the progression of the startup. The three main ideas to take into consideration in legal challenges are litigation, arbitration, and mediation. According to Legal Eye, litigation takes matters to court, arbitration is quicker than litigation but involves a decision-making third party, and mediation is a voluntary process by which a nonpartisan mediator helps to resolve the dispute. 

Sources:

1. Georgetown Law. “Corporate Law.” Georgetown Law, 2024, www.law.georgetown.edu/your-life-career/career-exploration-professional-development/for-jd-students/explore-legal-careers/practice-areas/corporate-law/. Accessed 21 Dec. 2024. 

2. ​​Global People Strategist. “Why Legal Compliance Is Crucial for Startup Success and Longevity.” Global People Strategist, 25 Sept. 2024, globalpeoplestrategist.com/the-importance-of-legal-compliance-in-startups/. Accessed 21 Dec. 2024. 

3. Legal Eye. “The Impact of Corporate Laws on Startups.” Legal Eye, 2024, legaleye.co.in/blog_news/the-impact-of-corporate-laws-on-startups/. Accessed 21 Dec. 2024. 

4. Westaway. “Startup Bylaws: What They Are and How They Work.” Westaway, 1 Feb. 2024, westaway.com/faq/startup-bylaws-what-they-are-and-how-they-work/. Accessed 21 Dec. 2024.