Some Few Legal Mistakes Startups Make:
As a startup coach and CEO of a business development company helping startups setup the right way, I have encountered quite a number of legal mistakes startups businesses make and they could have easily been avoided.
Let us look at some of the common legal mistakes startups make:
No company or Business structure
How do you know which business structure is best for your ideas or the company you want to set up? Which acts regulates such structures?
It’s won’t be a shocking revelation to find out many startups do not even know which form of business they want to run or are running and which kind of business structure they need to have in place. When I say “structure”, I do not mean the building structure in which the business would be run. I mean a proper company hierarchy.
No employment documentations
Startup entrepreneurs, most often in this part of the world thinks it is not necessary to put these things in proper order since they’re running small scale businesses.
Last week we discussed building startup teams. When you’re building a team to help you make your vision a reality, it needs proper documentations.
How many startups, have such documentations in place?
Your hired team or partnered team need to sign employment documents for records.
What kind of documents do they need to sign and how do startups come up with such documents?
Some of the employment documents for a new company includes:
1. At-will employment document
2. Confidentiality document
3. Company handbook of policies and regulations
4. Inventions (new ideas assignments) agreements among a few for a startup business.
How do you come by these documents and understand what you getting into? Simply get a legal adviser or services for your business. Legal fees do come in many other forms and most legal advisers provides very good legal support for startup businesses. If you do not make the effort of getting one, you would never know.
No clear or well defined co-founders agreement.
Many startup entrepreneurs set up businesses with friends making them co-founders or partners.
It’s usually, “ hey I have a business idea, let’s come together and make it happen”. They do not go to the extreme of having a clearly written document defining what role who plays, what contribution who makes, who gets what percentage and a whole lot of other documentations. A normal agreement which binds them as co-founders is at least enough for the startups, whether it is a verbal or a written agreement.
A well written documentation witnessed by a Lawyer or a third party is crucial folks. It sets the foundation for your business right, knowing who legally is responsible for one thing or the other.
Just a verbal friendly agreements or written agreement without a proper legal backing won’t go right when you finally begin hitting the millions. Most startups end up in litigation issues in the future. To avoid these, you need to get it right.
No contract agreements
How do your startup business operates with customers and clients and future investors?
Do you have a standard form contract tailored to your advantage?
Every company should have a form contract and startups are not exempted from this.
It is very important, note this; very important that your form contracts are written by a business lawyer not a copied or downloaded contracts from the Internet. Every country has its own business acts and regulations. When it comes to dealing with clients and customers, it is very crucial for the need of a legal adviser to guide you through with a good standard form contract.
No intellectual property protection
It is also very important to consider carefully an intellectual property protection for your startup business.
When you think you have a very unique service, technology or product, this right protects your interests.
This prevents the rights of third parties and infringement and ensures the protection of your company’s intellectual properties.
Company policies, regulations, confidentiality, copy right, trademarks, service agreements etc are all part of the protections you need to carefully consider with regards to your startup business. They are not things to ignore for a later date in the future.
Among the few discussed above, there are also these to importantly note:
Sales tax etc
Tax issues are very complicated and hence requires an expert to get you through it. After you have duly registered your business, this should be the very next step to take. This would go a long way for your business. It is a sad truth that most startups do not honor their tax obligations because they feel they make no money or simply because they are startup businesses.
Legal plans every startup entrepreneur needs to consider
Let’s take a brief look at a list of a legal plans every startup entrepreneur must consider before launching out his or her startup businesses.
1. Article of incorporation
2. Tax obligations
3. Intellectual property
4. By laws
5. Operating agreements
6. Non disclosure agreements
7. Employment agreements
8. Service offering agreements
9. Shareholders agreements
These are basically the most important legal tips for every startup to take notices of, seek legal advice on, consider, plan for and implement before setting up and launching out as a business.
Mostly, startups prefer to start their businesses and some where along the way, they start to incorporate these tips or adhere to some of these necessities for their businesses.
Don’t build businesses in the air without the appropriate foundations it needs to be recognized as a legal entity. Build businesses with the big future plans in your startup plans today. Do not wait till tomorrow. Businesses are built with forecasts of its future growth and successes in the present plans.