Your startup needs a hustler, a hipster, a hacker… and a lawyer
There are quite a lot of things that must fall in line before your startup can safely pass the breakeven point and start scaling up. As the common saying in the entrepreneur community goes, you need a hustler (sales rep), a hipster (designer) and a hacker (coder) to make a product. However, if your startup lacks legal expertise, all the great results delivered by the rest of the team might go to waste. Read on to learn about 5 aspects of your business that must be covered by a lawyer to ensure you are on the safe side.
Well, you might say, I will hire a lawyer once I need one, but at the very beginning of my startup journey, I have more important things than legal coverage to invest money in. To that, we can answer with a quote from the Holy Bible, Matthew 7:24-27 — “He who listens and puts this advice into practice is like a man that builds his house on the rock. And he, who does not listen, builds his house on the sand”. When you understand the lawyer is needed, all the possible mistakes are usually already made, and the lawyer can’t help you avoid them. Naturally, avoiding a mistake is much better than rectifying its consequences — both in terms of spending money and time.
Thus, there are 5 crucial aspects of your business that should be covered legally:
- Equity sharing and revenue sharing conflicts.
- NDAs, SLAs, employment contracts
- Patenting and IP rights, trademarks and copyright
- Relations with contractors and partners
- Compliance with regulatory legislation
Let’s look into each of these challenges in more detail.
Equity sharing and profit-sharing conflicts
Startup founders live and breathe their ideas, they are absolutely committed to making their businesses successful. However, co-founders, CTOs and the rest of C-level executives are rarely as committed, and their level of effort input might degrade with time. Nevertheless, if the startup is able to take off and becomes profitable, the disputes regarding the importance of every individual’s input are quite common. Every member of C-suite can rightfully say that their personal commitment was instrumental in achieving success and demand more equity or a bigger share of profits.
SOLUTION: Hiring a lawyer to write out the legal operating agreements and determine the shares of revenues and equity for each of the founders is the best way to prevent them from demanding to adjust their shares in the future. It might seem an unfriendly move, but it prevents an insanely huge amount of conflicts — and these agreements can be adjusted by mutual agreement later down the track if you find this to be a better choice.
NDAs, SLAs, employment contracts
Relations with employees can be as tangled as with other founders and even more complex, as they are much less motivated to work with their sweat and tears to achieve your result. However, front-end and back-end developers and DevOps engineers are as essential for startup success as CTOs, Sales reps and Team Leads. Finding good specialists is hard in a competitive startup niche. Making such individuals true A-players and team members is even harder — and if your employees leave, they can endanger all the project outcomes.
Most importantly, they might potentially disclose some key information regarding your project that your competitors can tun against you. Preventing this seems pretty simple — just make them sign a Non-Disclosure Agreement when hiring them, right? There are lots of free templates available on the web, take one of them, adapt to your needs, and… Wrong. If a competitor and your ex-employee are willing to cooperate, they will hire a lawyer that will be able to find loopholes in your home-made NDAs (be it incorrect wording or missing paragraphs with key information) and abuse the situation.
SOLUTION: Yes, it is that simple — hire a lawyer! A professional will be able to formulate all the statements correctly and adapt the NDAs and employment contracts to your unique case, ensuring your position is watertight in case of any disputes with your employees. Note, we are not even talking about a full-time hire of a lawyer — a one-time job will do, but this investment can save you a world of pain in the future.
Patenting and IP rights, trademarks and copyright
There is nothing worse for a fledgling startup than to find itself being accused of copyright infringement, violation of IP and patent rights, or trademarks. Startups usually do their best to ensure they don’t violate any IP rights before they start developing their products — well, you did google for all the topics related to your latest project before starting it, yeah?
Unfortunately, most startups think they can license and patent anything they build when the need for it becomes obvious. Unfortunately, when such a need becomes obvious, it is usually too late to patent anything, as you have a lawsuit for IP violation on your hands.
SOLUTION: you guessed it — hire a lawyer to do a background check. Registered lawyers can issue requests into patenting bureaus of your country and run other IP and trademark researches to ensure you are green to go with your brand name, product idea and design, marketing slogans and other aspects of a successful project. This takes time and money, yes — but these expenses are nowhere near as high as losing in the court of law and having to shut down your entire startup due to the infringement of someone’s patent or IP rights.
Besides, doing such a background check preemptively provides you with a proof that at the time you decided to patent your trademark and product idea, they were free for the taking. This can be extremely handy later on, should some competitors decide to file a lawsuit that you infringed their lawful rights. The early bird gets the worm, you know, so the faster you patent your products and ideas — the better for you.
Relations with contractors and partners
Many companies go for outsourcing certain services (mostly for IT outsourcing of software development and DevOps operations) to cut their costs and shorten the time-to-value for their projects. Such commitments must be legally regulated to protect both parties. For example, IT Svit, which is one of the leading Managed DevOps Services Providers worldwide, always sign NDA, SLA and other needed paperwork with all clients to ensure both parties have their rights protected.
SOLUTION: Go for legal assistance every time you engage in a contract with a service provider or a potential investor. Having your rights and responsibilities clearly defined for both parties is a huge help in mitigating any risks and solving any potential issues should they arise.
Compliance with regulatory legislation
While your startup is undoubtedly your asset and you can manage it the way you like it, if you decide to go for IPO instead of exiting, you should comply with all the legislative and regulatory codes of your country of registration. If you want to trade your shares, they become securities and any operations with them should comply with strict rules. For example, if you decide to present 5% of your equity to your uncle before IPO — you can do it in under a day by adjusting the founding documents at any law firm. But should you decide to do it after IPO — you need to gain the approval of the board of directors and investors, and this can be quite complicated.
SOLUTION: Naturally, hire a lawyer. At the IPO stage, when your startup has passed the breakeven point and is successfully growing, a lawyer becomes a necessity, not a luxury to ensure your legal paperwork is in full order. This is essential to ensure no unforeseen legal ramifications derail your IPO and hinder the ongoing growth of your startup.
We listed 5 reasons to hire legal assistance for a startup. This is a good decision for safeguarding your business from any hindrances that might be lurking in the unpredictable waters of the startup journey. The most important aspect of this all is working with trustworthy technology partners and contactors and securing your contractual obligations legally. This ensures your interests and rights are properly covered and you get the needed services in time and under budget, ensuring your competitive advantage and helping you succeed on the market.
At least, this is how a partnership with IT Svit works. If you want to experience it firsthand — contact us with your project requirements and we would be glad to help you out!