Start Up legal tips: why startup entrepreneurs need to embrace basic legal services for their businesses
“The foundation of every new thing, be it a business or any other thing, determines it's strength, stability and growth” ~Harmony Attise
First of all, while I have made every effort to provide accurate information as a startup and small business coach, this article is not meant to serve as your legal advice but to guide you through the basic legal tips every startup business need. Therefore, I will not be liable to you if you rely on this information solely for your support.
Setting up a business is exciting and with all the “can't wait to be independent and my own boss” feelings, without the right legal advice it can also be a disaster awaiting to explode.
You’re a small business owner and not a legal expert. Nevertheless, an entrepreneur certainly needs to be abreast with most aspects of his or her business. Because, as you start and grow your business, you will need very important directives regarding many legal issues, tax regulations, property laws, (including rent regulations), intellectual and copy rights, taxes, corporate liability etc.
It is essential that, when laying every brick for the foundation of your business, you must lay the foundations very strong so it can survive against future challenges. It is also important to get Legal advice or a lawyer to guide you through the special business needs.
The truth is; some or let me dare to say most startup entrepreneurs, do not even consult a legal adviser or a business attorney before setting up their businesses or building their ideas into businesses.
Startups fear the word “legal” and as much as possible avoids it.
But do startups need legal advices or services?
Does it play any significant benefits for their inception?
Let's understand what “legal” means
In every country, there are regulatory bodies which governs it's business environment. In Ghana for instance, we have the companies Act 1963 which regulates corporate bodies or businesses.
So, even before your business is recognized as a legal business in Ghana, it has to be legally registered under the laws of the country.
Without a certificate of incorporation and a certificate to commence business issued by the regulatory body; The Registrar’s General Department, your business is considered illegal and has no legal backing to exist or operate. Be it an enterprise, sole proprietorship, limited liability etc.
How do you know, which form of business to operate and which type of the company's Act regulates it? How do you determine which structure best suits your startup business? How do you know the legal needs of your business?
You need a legal adviser. It is should be the first step to take as a startup Entrepreneur before setting up your business. Eight out of 10 startups would seek for legal advice before launching out their ideas and registering them into businesses.
You should always do things the legal way so that you don't have to deal with legal minefields in the future. Do not be too excited about starting a business and forgetting the most important foundations it needs to be built on.
Legal cost or legal phobia?
“Legal costs.” Legal costs include not only attorneys’ fees for a lawyer’s work, but also registration fees. Registration fees are non-negotiable. These fees are set by a regulatory body and do not include a lawyer’s billable time.
Many times, some of these bills scares away the startups and makes them avoid doing things the right way. The question of legal fees is often a frightening one for these startups. Legal costs may often come as a shock.
Is it the question of the cost of merely a phobia of not wanting to be involved with the “law” legal bodies? Most often, it's the fear of the legal fees (cost) rather than phobia of legal issues. Regardless what it may be for many startup entrepreneurs, it crucial to seek a legal adviser or seek the services of a lawyer to avoid tumbling in the future.
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 think 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:
- At-will employment document
- Confidentiality document
- Company handbook of policies and regulations
- 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 provide 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:
- Payroll tax
- Tax incentives
- Sales tax etc
Tax issues are very complicated and hence require 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 legalplans every startup entrepreneur must consider before launching out his or her startup businesses.
- Article of incorporation
- Tax obligations
- Intellectual property
- By laws
- Operating agreements
- Non disclosure agreements
- Employment agreements
- Service offering agreements
- 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.