5 Legal Moves A Tech Startup Should Do First

Linkilaw Startup Advice & Tips

Your tech startup is ready to go and you’re excited to launch it into the world, but don’t get too excited just yet. There are some important legal moves you must make first.

 

If you don’t take care of these first then you are likely to run into many legal problems in the future that all could have been avoided.

 

Below you’ll find the five legal moves your tech startup should consider before you launch into the marketplace.

 

Choose A Corporate or LLC Company Structure

 

One of the biggest mistakes you could make is not incorporating your business before you launch. You must incorporate your business as either a corporation or limited liability company (LLC). This is to make sure that you give your business the solid legal foundation from which to grow.

 

Furthermore, this ensures that your business is a separate legal entity from you. Therefore, you can’t personally be sued and you’re also not personally responsible for business debts. This is really important because if someone sues you or the business goes bankrupt with huge debts owing then assets like your home can’t be used to cover the debts.

 

Protect Your Intellectual Property

 

You must never take a blase approach to your intellectual property (IP) because it is a large reason why your business will rake in profits.

 

In the tech world, new innovations and inventions are always being created so you need to make sure you get anything patented, trademarked or copyrighted. It’s also important that you make sure that all employees sign contracts that clearly stipulate that anything they create while working for your company belongs to the company itself rather than them.

Assign IP To The Company

 

After taking steps to protect IP in the company, you must then make sure that ownership interests are assigned to the company of all founders.

 

The reason why you must do this is because it prevents a couple of very painful problems occurring in the future. It protects you against any former founders suing or mounting an ownership case against the company years later. This can happen particularly in situations where the company becomes profitable and the founder is looking to get as much money as possible despite you taking all the initial startup risk.

 

Secondly, it’s crucial for investment reasons. Your startup is going to need to get investor funding but no serious investor will invest in a company that does not have proper ownership interests assigned first. The reason being is that they’ll want to know what their ownership stake is in the company.

 

Shareholder Agreements

 

If you’re looking to make it big as a tech startup, you’re going to want to eventually take your company public and attract shareholders. However, before this ever happens you need to make sure that there are shareholder agreements in place between all the founders and key investors in the company.

 

This agreement should cover things like voting rights, ownership, and the general level of responsibility of all those involved in the running of the company. If you don’t get shareholder agreements sorted out in advance then you can end up facing some messy litigation cases in the future.

 

Do your groundwork here and get it sorted.

 

Founder Vesting Agreements

 

If you’ve got more than one founder in your company, then there is a crucial legal document to get.

 

Some founders of a company will find that over time that they may become detached from their obligations to the company. Even their responsibilities may dissipate over time, performance may decrease, etc. What a founder vesting agreement does is place conditions on a founder ownership stake in the company.

 

So for example, if a founder’s role in the company gradually decreases over time then you can place conditions on that for what their ownership in the company is. You can also do this based on performance indicators, responsibilities and more.

 

Interest is usually going to be diminished or there will be no interest left for founders depending on these conditions.

 

In either case, these interests of founders must be determined in advance if you want to avoid costly litigation battles in the future.

Closing

 

It’s important that all legal bases are covered before you launch your tech startup into the marketplace.

 

There have been too many cases whereby a startup has launched without the necessary legal foundations, only to suffer the consequences of multiple litigation cases later on.

 

The only way to protect yourself is to make sure that the five legal moves in this post are covered first.

 

Still don’t understand exactly what steps to take and how to protect your tech startup legally? Then get in touch with one of our legal experts today.

Comments

comments