Legal Advise for Start-ups
The value of investing in legal advice for your business cannot be underestimated. By receiving proper legal advice early on in the business life cycle, even when you’re a startup, you could potentially make costs savings and allow your business to operate more efficiently.
Legal fees are likely to be a perceived barrier for a business owner to engage with a solicitor to discuss and receive advice regarding their business. Whilst it is important to manage costs and expenses for any company, the value of taking legal advice regarding the operation is paramount, as whilst owners are fantastic at commerce, sometimes the legal and regulatory framework which the business (and business owners as directors and shareholders) operate in, can be somewhat overlooked.
So whether you are just launching your venture or busy growing it, you face critical decisions about every aspect of your business. Some of the legal issues founders typically have to address at the early stages are related to entity formation, intellectual property protection, compliance with employment laws, tax planning, and financing. Below is a breakdown of a few areas where a start-up will require legal advise;
- Business Formation: This includes decisions regarding incorporating the business either as a sole proprietorship or a limited liability company. The founders also have the option of either registering as a limited liability partnership or a limited partnership. It is important that the proper structure that will protect all investors in the business and best suite the business objectives is decided on at this stage.
- Regulatory Compliance: This includes advise on the appropriate licenses, permits, approvals, statutory filings, etc that are required to properly carry on the business. For example if you want to lend money to customers for interest in Lagos State, you will definitely require a lending License. If a new company must succeed, then its important that the right decisions regarding regulatory compliance are made to avoid being on the wrong side of the law.
- Business Contracts/Agreements: This will usually contain the terms and conditions under which a business intends to trade with both suppliers and customerS. These are very important documents as they create the legally binding rights and obligations for each party. Terms of business will cover specific details relating to the supply of goods or services, when the business can raise its invoice, the payment terms of the invoice and limiting the supplier’s liability amongst other things. These terms must reflect the way the business is conducted so the protection given is relevant and effective. We have seen clients copy and download agreement terms from the internet, and however tempting this is, it is a dangerous approach which may leave the company exposed. These types of generic terms may not provide the relevant protection required as there may be gaps or they may not cover specific issues relating to the business. If your startup trades with consumers and/or online, then there are multiple regulations and laws which will apply to this type of business and it can be onerous to navigate by yourself, as these legislations are highly prescribed.
- Brand Protection: This is another area that a new business must consider. This is not limited to protecting your own brand alone, as any new business will need to conduct research to ensure that it does not step on the toes of any other brand. We have advised on several cases where clients have had to send letters to other businesses or their lawyers, stating that the new business infringes their trademark or other intellectual property rights.
Copyright arises automatically in relation to the business name and/or branding, but this only prevents copying. A trademark provides relevant protection as it protects the name and branding which is potentially the same or similar. Trademarks give the business owner a monopoly regarding the business name or brand for the specific class of goods or services they deal in, which can be very valuable.
- Shareholding and management structure: Business owners must consider how they intend to regulate the relationship between the founders/shareholder/investors, so that all parties are clear on the mechanisms and procedures upon the occurrence of certain events. Shareholders/Founders’ Agreements deal with these aspects and include, amongst other things how significant decisions of the business are decided between the shareholders, the procedure if a shareholder wishes to leave the business (including pre-emption rights on the transfer of shares), restrictions on the shareholders both whilst they are a shareholder and after they have sold their shares to protect the business. The shareholders agreement or Founders’ Agreement is a valuable tool for any business as it allows the owners to agree and have clarity regarding the procedures and mechanisms required in order to run the business and to deal with owners when things go wrong.
Startups that seek legal advice early can avoid some of the most common mistakes and pitfalls that can trigger legal issues, ruin deals, cause financial repercussions, or limit their ability to reap the full rewards of their idea. So, although the value of legal advice for startups might seem like a high initial cost but as we have seen the value in obtaining advice at the out-set and having clarity on the legal issues facing the business can far outweigh the legal costs.
Team 618 Bees
Sources: www.launchtothrive.com, www.startupmagazine.co.uk, www.inc.com, www.worspace.co.uk