New Startups in Austin and Elsewhere Should Consider Arbitration Options

In recent years, Austin, Miami, Seattle, and Denver have emerged as some of the top cities in the nation in which to launch a new startup or other business. Each city reportedly hosts a number of international conventions geared towards entrepreneurs. Although many such business persons may find themselves focused on the technology or creative aspects of their new companies, it is important for entrepreneurs to maintain the right legal framework in which to protect any intellectual property or other rights. Non-disclosure agreements, employment contracts, articles of incorporation, and other legal matters should not be ignored. Neither should arbitration.

For a new business, litigation is not always the most effective or appropriate method of resolving disputes or addressing legal issues that may arise. This is often particularly true with regard to international business relationships. Sadly, one court case can potentially drain the resources of a new company. Using arbitral agreements as part of a new startup’s legal arsenal can substantially minimize such risks.

According to Forbes magazine’s article entitled “10 Big Legal Mistakes Made by Startups,” one of the most significant ways a new startup can insulate itself from legal trouble is to create a standard contract that protects its business interests. This should include an alternative dispute resolution provision that requires any disputes to be resolved using confidential and binding arbitration. Through binding arbitration, companies can enjoy finality while maintaining a handle on costs, timing, and venue.

Since arbitration provides for limited discovery, it can be much less expensive and time-consuming than engaging in traditional litigation. Additionally, the opportunity for a party who loses in arbitration to appeal is reduced due to the deference provided to arbitral proceedings by the courts. The right alternative dispute resolution provision also allows a new business owner to shield the company from being forced to participate in a foreign legal proceeding.

Due to the complexity of legal issues many startups face, it is important for new business owners to consider utilizing arbitral provisions in their contracts and other agreements. An experienced Austin-area small business attorney can help.

Additional Resources:

Startups May Be Unaware of Arbitration Options, by Gabriella Morello and Yara Lorenzo, Daily Business Review

10 Big Legal Mistakes Made By Startups, by Richard Harroch, Forbes

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