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Three legal lessons for startups

February 17, 2011: 10:38 AM ET

The dizzying pace of a startup company frequently leads to legal mistakes that could shake a budding company to its core. Entrepreneurs, take note: Here are a few things to keep in mind.

By Benjamin K. Riley, contributor

Startup or emerging growth companies have to act decisively, efficiently and quickly. But the frenetic pace and other challenges these companies face often lead to serious legal mistakes. All too often, these companies fail to distinguish and understand the differences between an agreement that is legally enforceable and one that is not; keep inadequate documentation of the legal rights and responsibilities among joint venture partners; and fail to identify and protect the company's trade secrets.

What makes an agreement enforceable?

An entrepreneur should recognize the differences between different kinds of agreements. With a few exceptions, an oral agreement is enforceable but will often be hard to prove. Without documentation of the agreement, understanding of any agreement will likely differ between two parties. If you want to make all the terms of an agreement enforceable, document it in writing.

Once a written agreement is prepared, make sure you understand what is actually enforceable. There are three basic types of written agreements, depending on the language of the agreement:  agreements to agree, letters of intent, and a fully defined, binding agreement. More

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