Startup legal mistakes

Startup legal mistakes

Apr 25, 2016
Startup legal mistakes - how to avoid them
Alexandra Isenegger Alexandra Isenegger
Having the greatest idea for a Startup and making it work are two quite different things. And a big part of getting your business to prosper is having the right legal structure and safeguards in place. Tons of startups fail every year because they are “too busy” to consider the legal issues they must handle. Do not repeat their mistakes! This article examines the most common legal mistakes startups commit and how to avoid them.

Choosing the right business structure
The first and most basic legal consideration when starting your business is registering it. The choice is wide and depends heavily on the specifics of your business. You can opt for a sole proprietorship or a simple partnership, or register a limited liability company. The most important difference is the fact that a limited liability entity has a separate legal personality, and so you are not personally liable for the debts and liabilities of the company, except for the amount you owe in unpaid share or guarantee. The best solution is to always consult a lawyer who can advise you on the most appropriate legal structure and the steps the register it.

Be it your suppliers, business partners or customers, you need to have adequate and properly drafted contracts to govern your legal relationships. Many startups either rely on oral agreements, or download poorly drafted templates from the internet. While both these options may work to some extent, in case of a dispute you will most likely be in trouble. Contracts should be specifically tailored to the underlying transactions, and encompass all possible outcomes, as well as sufficiently protect you in case of a disagreement of any sort. Make sure you have proper contracts in place and avoid the hassle of future disputes.

Another common mistake startups do is not formalising the legal relationships with their employees. From the first moment you have people working for your business you need to have adequate employment contracts signed. Even if it is a friend of yours or a family member, labour laws impose stringent sanctions on businesses who do not comply. Moreover, you need to protect your confidential information and avoid disputes regarding payments. You will also have happier employees, which is a crucial consideration!

Website Terms and Conditions and Privacy Policy
Creating a website is on the top priority list of every startup in the 21st century. Besides all the web development and design, you do need to include Terms and Conditions and Privacy Policy, as well as a Cookie Notice if you use cookies. The importance of these documents is critical. The T&C govern your relationship with your users, so it is crucial to include all the relevant clauses, such as limitation of liability, rights and obligations of the users etc. The Privacy Policy is a must as you have legal obligations as to the way you store and reproduce the sensitive information of your users. Failing to enact these documents on your website can result in needless legal disputes with your users and customers.

Intellectual Property
A good number all startups today do not trade with physical products. Instead, their biggest assets are intangible, for example creation of content, or software solutions. IP laws protect your intellectual property and retain your competitive advantage. Make sure you register your brand and products as trademark, make notice of copyright violations, or register your inventions for patents. Failing to do so may result in other companies stealing your know-how or brand name and crashing your business. Familiarise yourself with IP laws this is knowledge which will keep you on top of your game always. Besides, investors tend to fund companies with IP assets as they understand the great value they provide.

This is just a tiny glimpse of the legal considerations you need to take into account when establishing your business. Make sure you consult with a legal advisor and invest in your legal framework. The future and progress of your business depend heavily on your legal structure!

  • VIA
  • Alexandra Isenegger