By 
Startups.
If there was ever a type of business that brings big dreams, audaciousness and passion together, this would be it. Little wonder when executed well, they make for great headlines.But however unique an idea they may be founded upon, startups are just like any other business, and they too, are governed by a relatively standard set of legal guidelines.
Often times, entrepreneurs get embroiled in the nitty-gritty of ensuring their startups are a success that a crucial component is forgotten: the legal aspect. And there lies a potential danger that may come back to bite. And bite hard.
The thing is, structuring the right legal framework for your startup need not impede your momentum or take a sizeable bite offyour financial coffers. And largely to thank are the advanced online automated legal document systems we have today.
To smoothen that process for you, we took it upon ourselves to compile a miniature legal directory highlighting the essential legal obligations every startup business needs to fulfill.
- Choose a Business Structure
Your business structure defines your company. It will impact your level of liability, it will determine the amount of control you wield, how much you shell out in taxes as well as your growth potential.
By business structure we mean either choosing a sole ownership, partnership, company or trust, each of which has its own pros and cons.
If you are thinking about bringing investors on board, a one company is the most common among startups. But there is also the option of a two-company business structure which comprises a holding company and operating company.
- Draft the T&C
Every business, startup or not, has some form of offering – a product or service maybe. If you are in the business of selling a product(s), you need to have a set of sales T&C (terms and conditions). And if you are rendering a certain service(s), a services terms and conditions is the thing you need.
When it comes to T&C’s, it is recommended to specify exactly what you’re offering, how you will offer it and how your customers pay. This helps thwart any potential conflict between your startup and customers.
In addition, the document should also address both buyer and seller rights and obligations, intellectual property, obligations and liability.
It’s a complex document that should be drafted by an experienced startup lawyer who is familiar with the marketplace, just so you’re sure every minordetail is covered.Every business is different from the other you know.
- Shareholders Agreement for Partners/Shareholders
A shareholders agreement is mandatory if you will be setting up the company with co-founders.
Think of it as you would a pre-nup, only this time, the relationship is between you and the other partner(s) and/or shareholder(s).
It covers in detail how decisions will be made, what each partner’s or shareholder’s rights and responsibilities are, how exits will be dealt with and how you will handle the sale of the entire business, you know, if it ever comes to that.
Again, a startup lawyer could come in handy as everyone wants an agreement that will look after the interests of everyone, never mind the company’s.
- Employment/Contractor Agreement for Hiring Staff
Initially, a startup may involve just the founder. But as it finds its feet and starts growing, you will notice that you can’t play a jack of all trades and do everything by yourself. You will need a range of different skills to help you manage the various aspects of the business, and this will involve hiring staff and contractors.
This is why you need an employment or contractor agreement.
Both documents must cover details like the role played by each party, their obligations, the remuneration and when it will be paid, confidentiality and the parties that own intellectual property.
It’s good to assess clearly whether the worker will be an employee or a contractor since this will influence everything from their role to their wages (employees need a minimum wage) to the employment perks (examples include superannuation or insurance) and so on.
An employment lawyer can help you in making a proper assessment, in case you aren’t sure.
- Have a Confidentiality Agreement/NDA (Non-Disclosure Agreement)
A confidentiality agreement or NDA ensures you are able to grab the attention of joint venture partners, investors and customers without divulging more confidential details than is really necessary about your startup.
However, chances are their questions will become more probing and at some point, you will find yourself compelled to touch on sensitive information pertaining to the business.In such instances, it is only wise to introduce the NDA form.
It helps protect you legally and also ensures you come across as a professional (and prudent) businessman to joint venture partners, potential investors and customers. If they don’t like it, let them take a hike rather than risk stripping your idea naked or disclosing ‘insider information’ you don’t feel comfortable revealing.
- Consider a Family Trust Deed
Part of the reason you have started the company is because you believe it has the potential to make money compared to the other options in front of you. You see it paying out dividends and growing your capital better than the other opportunities.
That said, you need to think ahead in terms of protecting your assets and flexibility when it comes to taxes.
A common trend among startups involves the entrepreneurs and investors using a family trust to hold their shares. This family trust, formed through a document known as a Family Trust Deed/Discretionary Trust Deed, is usually a separate company incorporated specifically for that purpose.
This ensures you enjoy benefits you otherwise wouldn’t in a company – income tax, capital gains tax, asset protection from potential creditors etc. – and also to use it as a vehicle for your retirement.
Last Word
Covering these six key issues ensures you sleep easy in the knowledge that you have plugged any holes in your startup’s legal foundations.
The last thing you would want is to see all the hard work you put in get engulfed in flames in front of your very eyes, knowing fully well that it was you who left the toaster on. Just because you ignored some basic legal considerations.
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- Often times, entrepreneurs get embroiled in the nitty-gritty of ensuring their startups are a success that a crucial component is forgotten: the legal aspect. And there lies a potential danger that may come back to bite.
- It’s a complex document that should be drafted by an experienced startup lawyer who is familiar with the marketplace, just so you’re sure every minor detail is covered. Every business is different from the other you know.
- A confidentiality agreement or NDA ensures you are able to grab the attention of joint venture partners, investors and customers without divulging more confidential details than is really necessary about your startup.
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