First, pat yourself on the back. If you’re reading this, you’re taking the rights steps because you’re about the discover the key legal requirements for an early stage startup.
We deal with a depressing number of startups that have neglected their legal work and come to us needing a lawyer to sort out a mess they’re in. Whether it’s a founders’ dispute, an intellectual property (IP) complaint, or a development contract gone wrong, these disputes are never easily settled: They are messy and costs can spiral.
For an early stage startup, the key is always prevention rather than cure. Any experienced venture capitalist (VC) or entrepreneur will tell you this. Startup life is simply too fragile for legal fallouts. It is crucial, therefore, to get the legal foundations of your company as solid as a rock – only then can you build and progress as a company.
That’s where today’s blog comes in. It isn’t a comprehensive guide, but it is a starting point. It contains a few pointers to get your legal situation sorted applicable to every early stage startup.
Let’s get into it.
Contracts Are Crucial With An Early Stage Startup
Getting your contracts nailed down is just as much a matter of business as it is legal sense. You want to get the most out of a deal: that means having a foolproof and watertight contract.
There are a vast number of contracts that you will have to set up in your first few years. Shareholders’ Agreements, Directors’ Service Agreements, and Terms and Conditions are all ones to get nailed down as you and your co-founders get your company set up. Consultancy or development agreements will then become important if you outsource any web, app or product design.
And what about investment? Yep, you guessed it. Contracts.
But let’s take this one step at a time. All of these basic contracts can be drafted simply and cheaply – the key point is that this actually happens! The financial benefits, especially with your investment documents, really are tangible.
There is a high chance that at some stage you will have a disgruntled client/ employee/ director. If you can point to a valid contract at that moment that details the rights, obligations, and liabilities of all parties, chances are the dispute can be settled quickly and easily without anyone being sued.
Regulations Could Ruin Your Early Stage Startup If You’re Not Careful
Keep your friends close but your regulations closer! Depending on the nature of your business, a different body will regulate your actions. Are you in Fintech? Get to know the Financial Conduct Authority (FCA). The latest legal startup?
The (Solicitors Regulation Authority (SRA) is your friend. Taking on the ad world? The Advertising Standards Authority (ASA) is where you want to turn.
No, these are not confusing jumbles of letters; they are national bodies that will govern your area of work. Without their sanction, you won’t be allowed to function.
As with all these things, legal advice is best, but you can do some initial research: Look on their websites, call them up, send them a singing telegram, it’s your call. Unlike with the contracts above, operating without regulation is likely to be a criminal offence for which you can be prosecuted. Unless your early stage startup is an easy-to-use guide to prison escape, I wouldn’t recommend it.
Data Issues For An Early Stage Startup
Data is a contentious issue and one that makes a lot of headlines. Essentially, if you are going to store users’ data, you will need to comply with national laws that are there to protect that data from prying eyes.
The laws in this area are changing and getting more stringent. We won’t go into them here, but be aware of the changes coming your way. As a starting point, you can register with the Information Commissioner’s Office (ICO). This is the UK’s data protection authority and, as a data gatherer you have a legal obligation to register with them. It costs £35 a year and saves a lot of hassle.
Privacy policies are equally important, and equally dull. But they’re required, so get one. Just as with the regulations above, failure to adhere to these data protection provisions might mean more than a civil claim against you; it may mean criminal prosecution.
Intellectual Property (IP) Protection With An Early Stage Startup
IP is an interesting area of law and is extremely relevant for startups and entrepreneurs. It is the way you protect your cherished brand – by trademark, patent, or copyright – and prevent others from using it for themselves. It grants you (almost) exclusive rights to market and use of the creation. You can protect brand names, inventions, designs of products, and things you write, make, or produce (this includes code).
Also beware of using another’s work or infringing on their rights. If you are exploiting another company’s IP without its permission and without a legal defence, that company is within its rights to sue you. Most of the time IP won’t be a worry for you – if you are using everyday language, for example, and you use some words that just happen to be a trademark, without referring to the actual trademark, chances are you will be fine. If, however, you are planning on working with other companies and using their brands, you will need to consult an IP specialist.
In the startup world, IP disputes are common as entrepreneurs compete for ground over their ideas and their brands. Get ahead of the curve by getting yours sorted.
Taxes For An Early Stage Startup
Amid the excitement of your new company, tax obligations can feel like a real drag. Boringly, however, they have to be complied with. Speak to an accountant or tax lawyer, understand the structure and nature of your company, and comply with corresponding tax obligations. Tax can be a drag; fraud can be a bigger one.
Don’t let tax and fraud issues derail your early stage startup before it even gets legs.
Final Words: Legal Requirements For An Early Stage Startup
So, there we have it. The only legal list you’ll ever need. Not really – this is clearly only the beginning so speak to someone that knows about these things. It doesn’t have to be Harvey Specter, but it should be someone who is specialised in startup law.
The UK’s booming startup scene has led to a new wave of entrepreneurial law firms with cheaper prices and transparent approaches. Getting in touch with one of them will provide the legal security you need as a fragile startup and it will leave you with far more time to focus on the things you really care about. If you’d like to ensure that you meet all legal requirements for an early stage startup then book a FREE Startup Legal Session.
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