

Ask HN: Legal timeline for a successful web startup? - matt1

I'm working on a webapp and there are a lot of legal things I'm confused about that am hoping you all can shed some light on:<p>- At what point after you launch should you consider forming a company? My understanding is that if you do it correctly with a lawyer this could cost several thousand dollars, so I'd like to wait until I know the startup is successful before I go through the paperwork. Is that the right way to look at it?<p>- What is that type of lawyer called?<p>- How does your timeline change if you're planning on charging your customers a monthly fee?<p>- Seems like a lot of people just throw a copyright symbol at the bottom of their work. Does that actually mean anything if there isn't any accompanying paperwork?<p>- When you launch a site what's stopping someone copying you idea and design and launching their own site? Is this what the Intellecual Property paperwork is for?<p>- On the flip side, what if your site is building a concept that someone else pioneered?<p>(For the last two I realize the answer might be "talk to a lawyer" but any general pointers would be helpful at this stage)
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tptacek
I'm not a lawyer, but I have helped launch a couple companies:

* Form an LLC now, so that your business operates under limited liability, as its own entity that can invoice and be invoiced, instead of out of your bank account. Cost: $200-300. You don't need a lawyer to do this in a one-person shop; just fill out the web form and give them your credit card number.

* You want a business lawyer once you have multiple employees (whereupon you'll restructure the company, often to a C corp so you can issue equity) or before you sign your first complicated contract.

* If you charge money, you probably have terms and conditions, and you probably want those reviewed before you publish them.

* You don't need to do anything special to claim copyright in the US, or anywhere else the Berne Convention applies.

* Nothing stops anyone from copying your idea and launching their own site except for a contract that they actually sign that prohibits them from doing so. When you launch, the clock starts ticking.

* Regarding your next question: welcome to the Internets.

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tstegart
They're called corporate lawyers, but many small firms and individual lawyers
do corporate law along with other areas of practice.

There are tax issues on what you get to deduct before and after starting a
company, but really I think your main concern should be the reason why you
want to start a company. If you have considerable individual assets and your
venture might be risky in terms of owing people money if it fails, then you
would want the strong legal protection a company can provide. If you're doing
something very benign, like starting a blog thats unlikely to get you into
trouble, well, you can wait.

It also matters how much capital you have. If you spend it all on a lawyer you
might end up with a nice document and not enough capital to carry on a real
business. On the other hand, you can have a great business and get caught
without legal protection.

This question was much more easily answered before the internet when people
started businesses with real profit estimates and business plans. Its a little
harder now with the "build first, worry about profitability later" attitudes
because you might build a web 2.0 business and it never takes off, so you'll
come away thinking your thousand dollar investment in a lawyer was wasted. It
probably wasn't, but you'll think it was because the venture wasn't
successful.

When actual money starts to change hands, the legal protections become more
easily visible and the value they provide is clear.

If you're not sure you'll make money, i.e. you're building a website and
hoping it will take off, my down to earth advice is to get a Nolo book, pay
the $200 to incorporate an LLC somewhere, and live with that crappy legal
situation until you start to make money. Its at least some protection at a
cheap price.

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mattmaroon
Mistake number 1 is asking hackers for legal advice. This is far worse than
asking lawyers for programming advice, because at least lawyers will tell you
they don't know. You're going to get 100 opinions here ranging from uninformed
to semi-informed, and all answers will be based on their own experiences and
not your specific legal needs.

Talk to a business lawyer immediately. They won't charge you anything for the
initial consultation and will answer these questions.

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jon_dahl
1\. You can probably file LLC papers with your state (or another state) for
~$200. I did that for my first company and didn't hire a lawyer until 3 years
later. I highly recommend doing this before you launch your startup. You
really should talk to a lawyer before launch, but this is better than nothing.

2\. Nothing stops someone from stealing your idea, except: (a) patents, (b)
copyright, (c) trade secrets.

You only have to file paperwork for (a), not (b) or (c).

3\. You can build on someone else's idea, unless it violates (a) or (b). (c)
only protects you as long as it remains secret.

4\. Talk to a lawyer. :)

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spencerfry
(RE: #1)

That's fine and dandy for LLC documents, but if you're working with partners
and don't have a clear Operating Agreement written out then you're asking for
trouble. I had serious issues with my first successful startup because our
Operating Agreement was basically pieced together from little things my
partner and I found on the Net with collaboration from a first year Yale law
school student. Terrible, terrible, terrible idea.

To make a long story short: the company became wildly successful very quickly
and re-doing the Operating Agreement wasn't really on the top of our minds --
it never is when you're doing well. Then three years later the two of us grew
apart and wanted to take the company in different directions. Sadly, we had a
poorly written agreement that made this a very difficult process with lawyers
on both sides fighting to interpret it. If you do nothing else, I'd say get
this done professionally sooner rather than later.

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tstegart
Yeah, my advice was definitely for a one person company. Two people should get
it done professionally. With one person the focus is on protecting yourself
from others. With two or more, the focus is not only protecting the
principals, but regulating the relationship between the principals and the
process by which that relationship might end. One thing a good lawyer will
make you do is think about what will happen if your company breaks up, and
they can advise you on how to structure your document to avoid a giant
litigation mess.

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netcan
The better then nothing bit still applies.

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vaksel
Just fyi the copyright symbol has nothing to do with being a company or not.
The copyright law in this country basically says that if you made it, its
yours.

As far as timeline, I would go with registering an LLC. Its cheap and will
give you a form of legitimacy.

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MicahWedemeyer
Forming an LLC is cheap and easy, but be sure to keep up with paperwork. I
showed our "books" to an accountant and he told me that if we ever went to
court with that, our LLC status would be stripped away immediately and we'd be
personally liable on everything.

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tstegart
Good advice Micah. A lot of people think once they sign the LLC document
they're magically protected and can just ignore it until something comes up.
One of the advantages of LLC's over C-Corps is that they get rid of a lot of
the formalities, but that doesn't mean you get to ignore everything. There are
a few things that can get you in trouble, but like you mentioned, mixing your
books is a HUGE deal.

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MicahWedemeyer
Yep, magically protected. That's what we thought :)

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michael_dorfman
Is this webapp a hobby, or a business? Are you serious about it being a start-
up? If so, I'd definitely talk to a lawyer _before_ you launch, and get
yourself organized.

Do you have a business plan? A budget?

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tonystubblebine
I'd be interested to know more about what people actually did versus what they
should have done. And how did it work out?

There's more legal work than just incorporation. Do you need business
insurance? Do you need to register somewhere for DMCA protection?

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tstegart
"You only need insurance when you need insurance" Ok, I just made that quote
up, but its true. You can never really answer that question, because the
people that paid for it and never used it would say it was a waste of capital,
and the people that never bought it and needed it will say you should always
buy it. Insurance is, and always will be a risk calculation that only you can
do. A lawyer just reminds you of a lot more bad things that can happen to you
than you probably had on your list, but ultimately, you need to decide the
chances of them happening to you, and how much you're willing to pay to be
protected.

With that said, some businesses are required to have insurance and bonds by
law, but that's usually something you can easily find out by looking at a
government website or Googling.

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tonystubblebine
Actually, we just took on a customer who required insurance. So sometimes you
need it when you don't need it. I was pretty surprised when the request came
through and didn't know anything about how to get it or what to look for.

