What should you do before starting a company?
Takeaway: Before launching your startup, conduct a thorough personal and legal audit of your obligations to your current employer to ensure a clean break and undisputed ownership of your intellectual property (IP).
The decision to launch a startup is pivotal—but the most critical risk management work often happens before the company legally exists. This “pre-company homework” helps ensure you are not carrying legal baggage or IP entanglements from your prior employment that could make your startup unfundable or vulnerable to disputes.
Review Your Employment Agreements
Locate and carefully review any agreements you signed with your current or most recent employer. Pay close attention to three key clauses:
Invention Assignment: Often grants your employer ownership of any IP you create related to their business or developed with their resources. This is the single biggest threat to your new venture’s IP.
Non-Solicitation: Restricts you from recruiting former colleagues or soliciting customers for a defined period.
Non-Competition: Limits your ability to start a similar business or join a competitor. Enforceability varies by state—California largely bans them, but even unenforceable provisions can trigger costly disputes.
Secure Your Intellectual Property
Your startup’s value hinges on having clear, uncontested IP ownership.
Avoid Contamination: Do not use employer resources—no work devices, corporate accounts, or proprietary tools—for your startup. Maintain a completely separate “clean room” environment.
Address Pre-Incorporation IP: If you developed relevant IP before forming the company—especially through university labs or side projects—clarify ownership and assign it to the new company.
Know Your State Laws: Some states (e.g., California, Illinois) allow employees to own IP created entirely on their own time without employer resources, but rules vary. Get legal advice to confirm.
Validate Your Business Thesis
Confirm that you are building a viable business, not just an interesting technical project.
Assess commercial potential and market fit.
Identify any regulatory or licensing requirements early.
In specialized sectors (e.g., aerospace, defense), validate that your technology aligns with an existing, funded need before incorporation.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.