Legal Matters in Startup Businesses
I had the honour of being a mentor at Startup Weekend KL-Women’s Edition this weekend and it was truly an eye-opening experience to be working with such a dynamic and passionate group of men and women.
The one thing that stood out for me while I mentored at Startup Weekend KL was that 70% of these startup business people had not considered or applied their minds to the legal implications of their business ideas, whether they had to comply with any legal requirements or even the type of corporate structures they would like to create to support those brilliant start-up ideas that they were going to pitch.
I have always said that laying the foundation right from the beginning is key to any successful business and I stand by that position.
Here are some points you may want to consider in your own startup business:
1. Having a Partnership and/or Founder Agreement in Place
Oftentimes people get so excited about a business plan that they forget to speak with their co-founders or investors about the terms of their partnership. Some questions, you may wish to ask would be for example:
- What are your specific roles and responsibilities as founders?
- What if one founder wishes to exit? What happens to his shares?
- What is the agreed percentage that each founder will get?
- What are the overall goals and expectations for the business?
- What are the consequences if the founders do not hit their specific KPIs?
2. Will the Company be Registered as a Private Limited Company, Enterprise or an LLP?
This question is pivotal as there are tax implications as well as other accounting and auditing requirements that the startup will need to comply with. Over and above that, personal liabilities of the partners and founders will also need to be considered. For example, if an enterprise is set up, then there will be personal liability involved as opposed to a private limited company, where the company will take on that liability as a legal entity.
3. Employment Issues
Having employment contracts in place for the people you hire whether they are freelancers or full-time employees is important. This will reduce the risk of having a labor court dispute arise in the event, you wish to lay off a particular employee who is not performing as expected. Do ensure that your employment contracts have a confidentiality clause that binds your employees even after their period of employment with you.
4. Data Protection Matters
When your startup business involves managing someone else’s personal data, there is a legal standard that you must comply with in managing and handling such personal data. For example, obtaining the consent of the Data Subjects before you obtain their personal data, storing of the said personal data, giving access to the personal data you have in your possession to the Data Subjects when they ask for it.
5. Intellectual Property Matters
Whether some other company or person has already trademarked your startup business name? Please do the necessary searches to ensure that you are not using someone else’s business name or logo. This ultimately relieves you of any hassle of being sued for trademark infringement later on. And what a pity that would be if you have already gained traction in your startup business and people have already started recognizing it.
What I have set out here are but a few of the legal matters that you may wish to think about in your own startup business. However, each and every business will have different needs or requirements so it would be best to speak to a legal advisor on setting your foundation right, as your startup may be the next big thing!
FOUNDER OF MESSRS RAVINDRAN