Starting a New Business

Consider these Items

There are a number of items that should be considered when organizing and starting a new business, which should be reviewed with legal counsel and other advisors. Here are a few of them:

1. Confirm That No Members Of The Planned Venture Are Subject To Non-Compete Agreements.
   
   

   As discussed in the First Important Topic, Non-Compete Agreements are generally enforceable against former employees in Minnesota. Accordingly, Members of the new organization should be satisfied that none of them are parties to a Non-competition Agreement that prohibit joining such a business venture or being immediately active in its business. As noted in the first important topic, there could be significant liability and Court ordered injunction if such non-compete agreements are violated. This is particularly important if anyone who is crucial to the success of the new venture is bound by such a Non-Compete Agreement with his current employer. If a new business venture is organized, financed and begins operation, an unknown or recklessly disregarded non-competition agreement that is enforced against an important participant could result in a shutdown of business operations or severely limit its operations and income. If any important member is a party to such an Agreement, competent legal advice should be consulted to consider its enforceability and other options that might be available for the individual and the group. Failing to address this issue could be a financial disaster for everyone.

2. In Planning A New Venture, Be Certain No Member Is Soliciting Customers Of His Or Her Present Employer
   
   

   Yes, it's very tempting for employees about to leave an employer, particularly those involved in sales, to ask customers if they will do business with the employee after leaving and going to a newly formed business. Even without a Non-compete Agreement, such pretermination solicitation is not permitted, as explained earlier at No. 8 under the topic discussing Non-compete Agreements. Most importantly, if a member or just an employee of a newly formed business organization has solicited customers before leaving a former employer, it's very likely the new organization will be liable in damages and enjoined from calling on those customers for at least a year. Lack of sales revenue from such customers may destroy the new business. Obviously, such pretermination solicitation of customers is not worth the risk.

3. Be Certain That Trade Secrets And Other Intellectual Property To Be Used In The New Venture Are Permitted.
   
   

   A new venture's need to be certain that trade secrets or other intellectual property is used only if and when permitted is discussed in detail above. The continual monitoring of a business for inappropriate use of intellectual property should be an assigned function of someone within the organization. Be particularly careful for the misuse of confidential information of a member's former employer about its customers, future product design, production and roll-out plans, research and development work and preliminary patent documentation. Liability, attorney fees and injunction, which could effectively close down a new business, may await such reckless misappropriation of a former employer's intellectual property. Obviously, these disastrous results should be avoided.

4. Identify, Inventory And Protect All Intellectual Property Of The New Business Organization.
   
   

   Unfortunately, most new business organizations are not careful enough to protect their own trade secrets and other Intellectual Property they develop. Keeping a record of such Intellectual Property, particularly trade secrets and confidential information, and protecting that information from misappropriation by departing employees and others, is extremely important. Some suggested methods are discussed earlier in other important topics. In addition, however, consulting with appropriate professionals to identify, maintain and protect such data is essential.

5. Agreements Among Members Or Shareholders, Including Buy-Sell Agreements And Control Agreements, Should Be Seriously Considered In A Start-Up Venture, In Addition To Selecting The Type Of Organization To Be Used.
   
   

   Certainly, choosing the type of organization, such as Limited Liability Company, "C Corporation," or "Subchapter S Corporation," is an important decision for any start-up venture. In addition, however, other agreements among an organizations members or shareholders should be carefully considered. This is particularly true of Buy-Sell Agreements and Member Control Agreements or Shareholder Control Agreements. Some of the compelling reasons for such agreements for any Minnesota Business are discussed in the immediate preceding topic.

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