What legal issues do mid-life founders face?

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The following is an edited excerpt from Never Too Late to Startup: How Mid-Life Entrepreneurs Create Wealth, Freedom & Purpose by Rob Kornblum. The excerpt was provided by Lioncrest Publishing. You can buy a copy of the book here.

Setting up your company and managing the various legal issues is a lot like trying to live a healthy lifestyle. You can ignore your doctor’s advice to eat well, get sleep, and exercise and you’ll keep on living, for a while. But eventually those choices will catch up with you. Your startup’s legal health is very similar. You can shortchange it at first, but eventually it will catch up with you. You could be sued. You could owe the government in fines or taxes.

You could even lose control of the business or the core idea to former employers or other founders. I understand the reasons why many entrepreneurs shortchange their attention on legal matters. They don’t really understand what they need to do, it can be confusing, and they fear that getting professional advice is incredibly expensive.

After all, law firms are expensive, often charging hundreds of dollars an hour. But you can and should educate yourself for free. You can also find law firms willing to give you discounts or defer their legal fees in the earliest stages. So take the time to learn what you need to learn now and avoid the huge headaches down the line.

Fighting the non-compete agreement

When you accepted your current or most recent job, you probably agreed to a few things with your employer. You may have signed a non-compete agreement (depending on the state or country you work in). You probably agreed to assign all of your inventions to the company, to not solicit employees or customers after you leave, and to give your full time and effort to the company. You probably also agreed to use company assets like equipment, software, and Wi-Fi only for the good of the company. These agreements can affect your new company or your side gig.

So you should pull out the company documents you signed and thoroughly read what they say about these issues. You should also consult with your attorney to stay on the right side of the law. A non-compete agreement is basically what it sounds like. It says that you won’t compete with your current employer for a period of time after you leave. You probably signed one when you started with your current or most recent employer. Have you pulled out and read through the company documents?

Some are worded very strictly, others are looser. Take a look at the “tail” or period of time during which you’re prohibited from competition. The most common tail is a year, but it could be longer or shorter. The other thing to check is the definition of “competition.” It could be tightly defined to a niche of a particular industry, such as “supply chain software, ” or it could be much broader. “Business software” would be hard to enforce, but nevertheless you agreed to it. Or it could leave the definition vague, saying that you agree not to compete in whatever business the company is in.

Even if your startup isn’t competing at all with your current company, be sure to carefully read through the legal docs you signed. You’ll be referring to them in the sections below. A non-solicitation agreement generally covers two very important prohibitions related to your current or last employer. The first prohibition is that you agree not to solicit employees. So if you start your company and then start hiring your former colleagues, you will be in violation of the agreement. These agreements are often difficult to interpret and enforce because of the possibility that employees approach you for employment rather than you solicit them.

Because of this, you can often get away with hiring one or two former colleagues, but don’t get into the habit of it. You might get a sternly worded “cease and desist” letter from the old employer’s legal team. You could even get sued for violating your agreement. The other prohibition is closely related to the non-compete section. This part prohibits you from soliciting the company’s clients, partners, or consultants.

The most heavily enforced part of this relates to the company’s clients. If you start trying to take business away from your former employer and you have agreed not to, they are likely to come after you legally. So you really need to know what you can and cannot do, and for how long.

How about intellectual property?

As a startup founder, “intellectual property” refers to all the ideas and work products you create in your new business. The formal definition from Wikipedia: Intellectual property (IP) is a term referring to creations of the intellect for which a monopoly is assigned to designated owners by law.

Some common types of intellectual property rights (IPR) are copyright, patents, and industrial design rights; and the rights that protect trademarks, trade dress, and in some jurisdictions trade secrets: all these cover music, literature, and other artistic works; discoveries and inventions; and words, phrases, symbols, and designs.

Your employment agreement with your current company probably says that anything you do or create using company equipment, technology, internet connections, or software (basically the stuff they own) belongs to them. So beware: if you’ve used company equipment for your side business, your startup’s work may belong to your employer. It is absolutely crucial that you check your employment agreement to see what it says about this. You may also have a problem if you use your own equipment but during your employer’s company hours.