25 Corporate Law Challenges and How to Address Them

1–5: Legal Structure and Forming a Business

Selecting the Best Entity Type

Obstacle: Making a decision to form an LLC, corporation, or partnership.

Solution: Review your goals, liability concerns, and tax implications first with an attorney before selecting any structure.

Undefined Ownership Contracts

Obstacle: Founding team disagreements regarding roles or percentages of equity owned.

Solution: Create a specific co-founder or shareholder agreement shortly after founding your business.

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Ensuring Proper Incorporation

Obstacle: The failure to ensure all necessary forms or permits.

Solution: Comply with the registration process in your jurisdiction and seek a lawyer to ensure compliance.

Poor Bylaws or Operating Agreements

Problem: Operational disputes due to vague rules.

Solution: Draft comprehensive bylaws or operating agreements which outline governance procedures.

Compliance with Local, State, and Federal Laws

Problem: Overlooking specific regulatory requirements.

Solution: Conduct proper research or seek a compliance expert to ensure compliance.

6–10: Corporate Governance

Conflicts Between Directors or Shareholders

Problem: Decision-making gridlocks or disagreements.

Solution: Add dispute resolution provisions to corporate documents.

Failure to Maintain Corporate Formalities

Problem: Failure to maintain formalities results in a loss of liability protection.

Solution: Conduct regular meetings, take minutes, and follow the correct procedures.

Poor Delegation of Authority

Problem: No clear authority for major decisions.

Solution: Clarify roles and responsibilities in your governance structure.

No Succession Plan

Problem: No clear answer if a key leader leaves.

Solution: Develop a formal succession plan to ensure continuity.

Too Few Risk Management Policies

Challenge: Inadequate exposure to risks in terms of litigation, as well as financial liabilities.

Solution: Develop a risk management framework and review it periodically.

Policy and Procedures

11–15: Intellectual Property

Unregistered Intellectual Property (IP)

Problem: Loss of rights in inventions, trademarks, or copyrights.

Solution: Register IP with appropriate authorities and register contracts securing ownership.

Competitors’ Infringement of IP

Problem: Others using your intellectual property without permission.

Solution: Monitor their usage and litigate if necessary.

Poor NDAs

Problem: Employees or partners disclosing trade secrets.

Solution: Utilize enforceable non-disclosure agreements for sensitive information.

Unclear IP Ownership in Contracts

Challenge: Who owns work created by contractors or employees.

Solution: Clearly outline IP ownership in employment and contractor agreements.

Global IP Issues

Challenge: Protecting IP in foreign jurisdictions.

Solution: Utilize international IP protections, such as WIPO, for trademarks and patents.

16–20: Employment and Labor Issues

Misclassification of Workers

Challenge: Treating employees as contractors.

Solution: Comply with legal standards for classification to avoid penalties.

Poor Employment Contracts

Challenge: Disputes over terms of employment.

Solution: Draw up full employment contracts setting out roles, remuneration, and conditions.

Violations of Employment Laws

Challenge: Non-compliance with labor standards.

Solution: Update on labor laws and have the HR staff undergo training.

Discrimination and Harassment Claims

Challenge: Litigation or reputation damage at the workplace.

Solution: Draw up anti-discrimination policies and provide employee training.

Failure to Protect Confidential Information

Challenge: Leak of confidential business information.

Solution: Utilize non-compete and confidentiality agreements.

21–25: Contracts and Funding

Dullly drawn up contracts

Challenge: Litigation caused by ambiguous contract terms.

Solution: Hire a qualified attorney to prepare and analyze contracts.

Contract Breach

Challenge: Failing to live up to promised terms.

Solution: Specify and include clear dispute resolution and penalties clauses.

Violations of Securities Laws

Challenge: Raising capital without the proper regulatory requirements.

Solution: Ensure that fundraising is done under the proper securities laws of either the SEC or local jurisdictions.

Investor Conflicts

Challenge: Disagreements over how decisions are to be made or returns.

Solution: Specify investor rights and obligations in the funding agreement.

Handling Debt and Equity Appropriately

Problem: Inadequate management of funds instruments.

Answer: Maintain up-to-date accounting and seek experts in finance as well as laws.

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