I’ve been reading a lot lately about the emergence of unintended entrepreneurs and first-time founders above the age of 50 (often one and the same). Most people envision entrepreneurs the same way: the stereotypical Silicon Valley tech wiz who recently dropped out of an elite school to follow his big ideas to fame and fortune. In reality, entrepreneurs come from all walks of life.
As a startup lawyer, I especially enjoy working with female founders, rural entrepreneurs, and startups run by people of color. There are multiple resources for these types of entrepreneurs including the North Carolina Bar Association and other nonprofit organizations.
In spite of the stereotypical image, nearly 30% of today’s entrepreneurs are over the age of 50. Several of the most successful entrepreneurs average 45 years old, dispelling the myth of the need to be a 20-something techie in order to succeed in the startup scene. Many of these entrepreneurs never intended to start a business. They may find themselves between jobs and during this time, they discover skills that are marketable and may be valuable to others. Instead of jumping back into the job market, they find themselves consulting—sometimes for their former company—or freelancing as a solo practitioner.
Regardless of the path you take to start a business, there are several legal strategies you’ll need to help you grow properly and mitigate risk along the way.
Choose your business partner carefully. It’s important that you trust your potential business partners. This is especially true for older entrepreneurs who may need to capitalize on a colleague’s understanding of business or technology and marketing strategy. In order to keep your company organized and efficient, you’ll need a formal, written document outlining how the business will be run, how equity will be allocated among the partners, who will serve in what role, etc. You can formalize these issues in a founder’s agreement, partnership agreement, bylaws, or an operating agreement, depending on the type of entity you choose to form.
Create a separate business entity. Once you’ve decided to start a business, you should formally incorporate by creating an entity for the business. This is especially true for entrepreneurs over the age of 50, because most of these startups are funded by the entrepreneur’s personal funds. If you don’t create a separate business entity, your personal assets could be at risk. An LLC or traditional corporation (a C-Corp entity) can separate the business from the personal, so you’re not risking your family’s assets with your business activities.
Fundraising may be more difficult. This is especially true for entrepreneurs who are using their personal savings or pension to bootstrap the business. Banks and traditional lenders may see these entrepreneurs as a higher risk and be unwilling to extends loans or lines of credit. As a result, you may have family members and friends who want to invest in the business, especially in the early stages. There are multiple legal issues to consider when accepting funds from family and friends. You should consider how to properly document these types of transactions and whether securities filings need to be made in order to remain compliant with the Securities and Exchange Commission. Your attorney can help you decide what filings are necessary.
Protect your IP. Sufficient intellectual property protection is necessary for most startups. This involves having non-disclosure agreements and protective provisions in place so that third parties who have access to your confidential information and IP are required to protect it. This also means being selective on those with whom you share this information. According to my Forrest Firm colleague, intellectual property attorney Lyle Gravatt, unintended entrepreneurs should exercise caution when discussing IP or potential trade secrets with third parties. Lyle recommends even protecting your IP when giving a presentation or publicly discussing your startup by considering withholding valuable proprietary information or filing for patent protection prior to any public disclosures.
The bottom line is whether you fully intend to start a business or find yourself self-employed almost by accident, there are certain steps you need to take in order to protect your business, your ideas, and your family. If you need to take your unintended business to the next level of performance, give me a call to get started.