In this post we outline a few of the legal issues a startup may face. These are matters that a startup lawyer is adequately equipped to handle on your behalf. It is by no means an in-depth list but we have covered some of the important legal requirements faced by a startup.
As if often the case, when launching a startup, the owner’s energy is directed entirely on taking the company’s product or service from an idea into the marketplace. And although it is important to get your company underway as soon as possible, be sure to think through the legal ramifications of your business strategy so that the company is set up for a bright future.
Incorporating your Startup
When you incorporate a business, a legal separation is made between the individual entrepreneur/s and the business itself. This incorporation protects the individual from taking on personal liability for any debts or liabilities which the business may incur.
You could think of your organisation as an independent vessel which carries out various aspects of business. It holds trademarks and intellectual property, employs, hires contractors, works with suppliers, pays GST, and enters into different contracts at various stages of the development cycle. It is the organisation itself which is responsible for conducting all transactions relating to the business, not the individual business owners.
Financing your Business Startup
As a startup, a day may come when you seek outside investors. When you do, you will want to be sure that you do not get outmuscled in the process, and secure for your company the best possible deal on the best possible terms – a win-win for you both.
Seeking outside investors come with their own set of legal issues, financial options such as personal investments, seed investors, crowd funding, loans and venture capitalists to name a few. Having a lawyer check over the “details” of an agreement or review the terms and conditions an investor places on the agreement will highlight issues, pitfalls or any legal obligations that you may not pick up on. Issues like, organising the investment as company equity or debt, what valuation to apply, the vesting schedule, and price adjustments at closing must also be taken into consideration.
Make sure you negotiate the amount of control your investors hold within the business. This should be done as early as possible, detailing the board structure through voting rights, outlining which transactions can be approved by your investor/s and deciding if they hold a stake in any future rounds of funding. A commercial lawyer, who specialises in startups, will be familiar with these investor-side issues. Their experience will help you anticipate many of the pitfalls you might have in closing a deal.
Employee & Contractor Agreements
As your startup develops, there will be a need to hire staff and to take on contractors and subcontractors to deal with various aspects of this development.
Drafting an employee agreement before the hiring process begins will help to develop the terms of your employee’s employment as well as the conditions set out for all staff within the company. It is important to consider a few things when taking on new employees which can be outlined within the employment agreement. These include; the assignment of any IP created by the employee, a non-compete clause, or non-disclosure agreement for confidential information held by the company.
Remember that there are rigorous compensation requirements, like the minimum wage laws, which you are legally obliged to comply with. Depending on the circumstances, these requirements even extend to unpaid internships.
Companies often misclassify employees as independent contractors, making it important to obtain professional advice when hiring a new talent or contractors to work within the business. A startup lawyer can help you navigate the do’s, don’ts, conditions and restrictions of these contracts.