Do you have an innovative idea and a charismatic entrepreneur? Are you thinking about startups? In that case, this text is for you.
As most of us believe, the development and success of a startup are immensely dependent on an innovative product and strong commercial and advertising policy. If we add to that a capable and willful entrepreneur, one may think we have all required ingredients to create a successful company. But even the fondest spectator of Shark Tank is mistaken if he believes it is that simple.
There is one last secret ingredient we need to add: legal planning. If in one hand the entrepreneur has to create a business plan that is appealing for investors, in the other hand that same business plan should sustain solid legal basis to be credible.
But what “solid legal basis” and “legal planning” mean? Essentially, it includes all legal form and formalities that must be thought and prepared when getting your startup project ready for business. First of all, it is extremely important to choose and protect the name/brand of the company, which must be different from all others in the market. In addition, it is fundamental to decide on the legal structure of the company, as well as to agree on the business scope, the shares of each partner, amongst other topics (normally agreed on a shareholders’ agreement and articles of association).
If any of the said legal aspects is poorly approached, it may spoil the company in the long run. Among the most common mistakes and on the top of the list are: choosing an inadequate corporate structure and having a wrong distribution of equity in the company. The bottom line is that a questionable business plan, from a legal standpoint, can cost the loss of an investor or a business opportunity.
With regards to the product itself, there are some measures you need to adopt in order to protect your intellectual property (IP). It is about registering your innovative idea in a way that you can seek legal action for unlawful use by third parties (including investors). For this purpose, you must register your “idea” (property) and the exclusive right of using it. You may often hear people talking about patent and trademark registration, but there are additionally other mechanisms that can protect your IP. Executing non-disclosure agreements with all employees of the company it is also an important way to prevent your know-how and other confidential information to be shared and disclosed.
Besides the basic aspects mentioned above, it is also crucial to define the general structure of the business, which ranges from limiting risks and liabilities, the way you may hire staff, to the positioning of the company towards partners, contractors and clients. Research on the legal structure of the business – and for that it might be useful to look at the structures used by competitors and peers –, decision on the business model to be used, as well as the practical and legal execution of the chosen model are crucial to safeguard the success of your business. That includes having, since day one, the clarity and the correct legal documents (for example, contracts that fit your business model).
For those already wondering about SMEs’ tax and labor issues, we will soon publish articles especially dedicated to the topic. But just with the elements we have mentioned above, you already have a lot of decisions to make and a lot to do! Get to work!