New York City offers a lot to startups. As the startup community that has experienced the most growth in the country over the past five years, New York City is attracting more founders than ever before. In fact, with the tax advantages, mentor availability, and relatively easy access to venture capital, NYC is experiencing an unprecedented startup boom. To help these new startups get off the ground successfully, New York City startup lawyers stay busy helping draft contracts, protecting assets and registering companies in New York. Every startup needs a NYC startup lawyer they can trust to deal with the host of legal issues facing founders in New York. Priori Legal can connect you on-demand with an experienced startup attorney from our vetted network.
Incorporation in New York
The first step for any startup in New York is formation. As a legal entity in the state of New York, you get the benefits of legal recognition and a legal framework for organization. The following are the most common ways startups incorporate in New York:
Sole Proprietorships and General Partnerships. Sole proprietorships and general partnerships are still the most common types of businesses in New York, especially for small businesses. Unfortunately, they do not limit your personal liability. Unlike many other entities, formation documents for these companies are filed at the county level, so you must contact your county business office for more information on the processes and paperwork applicable where you are located.
Limited Liability Partnerships. Limited liability partnerships are similar to general partnerships, but they limit the personal liability of you and your partners. Usually LLPs are limited to certain businesses, including real estate investment or groups of professionals. While this may not apply to traditional tech startups, some startups can take advantage of LLPs. LLPs are formed by filing a Certificate of Limited Partnership with the NYS Department of State.
C-Corps. C-Corps are traditional corporations that are individual tax entities with public filing requirements. C-corps are formed by filing a Certificate of Incorporation with the NYS Department of State.
S-Corps. S-Corps are structured much like C-Corps, but they are taxed as pass-through entities. In addition, they are more limited in terms of investors and stock options. S-corps are formed by filing a Certificate of Incorporation with the NYS Department of State.
LLCs. LLCs, or limited liability companies, are much more flexible corporate structures with fewer bureaucratic requirements. LLCs are typically taxed as pass-through entities and have few requirements under New York law for their operating agreement. LLCs are formed by filing Articles of Organization with the NYS Department of State.
A qualified New York City startup lawyer can help you decide upon the best option for you startup’s needs.
Giving Away Equity in Your Startup
Regardless of the current stage of your startup’s development, equity is an important consideration. Equity remains a startup’s most powerful leverage, whether you are looking to attract talent, mentorship, or investment. That’s why it is so important to give away equity strictly in compliance with New York state and federal law.
Dividing Shares Among Founders
The division of original shares must be done at the time of incorporation. Ideally, founders should establish how much of the company each founder owns at the earliest possible stage—and in writing. Often, this includes a reverse vesting agreement that ensures that all founders are invested for the long haul. You should also specify what each founder’s responsibilities and cash investment are and establish corporate governance documents to keep the whole team on track.
Many founders assume that securities laws are something not to worry about until making a large offering, but any exchange of shares for investment is subject to securities laws—even if you are just soliciting capital from relatives. In fact, even the equity you offer to employees is subject to securities laws. You may already have need for a 409A valuation or robust compliance plans. Consulting with a NYC startup lawyer can help you ensure that you aren’t making securities law missteps in the earliest days after formation, when these mistakes can be so costly.
Securing Venture Capital in NYC
Of course, once you are soliciting venture capital in NYC, you are held to an even higher standard for securities law compliance, and you face other legal challenges at the same time. Venture capital investment contracts are incredibly complex documents that have a lasting impact on your business success. Without the advice of a startup attorney who is on your side, you may find your startup in a toxic partnership. In fact, mistakes during VC rounds may even leave you unable to succeed later. Whether you are just at the seed round or are already in later rounds, consulting a VC lawyer is one of the most important decisions you can make.
NYC Employment Law
With a higher minimum wage than in most states and other cities even in New York, as well as higher health and safety standards, NYC makes employee welfare a priority. Even if your startup is in its earliest stages and you have even just one person working for your company, you must strictly comply with NYC employment law. It may help to speak with an employment lawyer about your compliance needs, including everything from worker’s compensation obligations to employment contracts to wages.
For any business, especially startups, IP is ranked among the most valuable assets. Your startup must take steps to protect intellectual property with appropriate trade secret protections, patents, copyrights, and trademarks. A NYC startup lawyer can help you develop strong non-disclosure agreements for use with third parties and employees, file for federal and New York patent and trademark protection, and even strengthen your copyright rights. Even your domain name can be secured through smart IP protection strategies.
How a New York City Startup Lawyer Can Help Even in the Earliest Stages of Your Startup
No matter how developed your business, it’s important to consider all the legal obligations you face or you can run into costly problems. You even can find yourself breaking the law. A New York City startup lawyer can help you prevent problems before they happen, protecting you as you grow. Whether you are a tech startup growing fast in DUMBO or a small business operating out of the Bronx, we can help find the perfect New York City startup lawyer for your needs.