An entrepreneur’s guide to legal advice
As an entrepreneur or even an employee looking to venture into the startup sphere, there is one aspect you should focus on to protect yourself and your company from trouble - the Law. Here’s our quick guide on what startups should consider when it comes to future-proofing their business…
Most entrepreneurs do not think about getting legal consultation earlier on in the journey as they see it as an expensive expenditure. However, getting it right from the very beginning and at major steps along the way can make all the difference between you still having control of your company, and losing it to problems that could have been avoided.
Since most entrepreneurs in the tech and business world today do not come from a legal background, they can often make naive mistakes that can cause them a lot more as the company grows. From patents, to intellectual property rights, equity shares, illegal clauses, correct paperwork, and more.
Here we talk about some of the most common problems and how to prevent them.
- Hire a lawyer: Firstly, when in serious doubt, call your lawyer and seek professional counsel over information you might find readily available online. Consultation to be on the right track is a lot better than taking a chance. Any kind of legally binding paperwork that needs to be signed, ensure that you’re doing it with care and expertise. There are few points in time that commonly see mistakes happening — when founding the company, onboarding a co-founder or a senior employee, and getting funded, amongst others.
- Do your due diligence: When dealing with people, remember to do your due diligence and not be in a hurry to sign them on. Do background checks and talk to people they’ve worked with before, especially in bad situations. You’ll get a fairly good idea on how supporting they’ll be.
- Protect your Intellectual Property (IP): If you’re thinking about getting a co-founder on board, then it is advisable to clearly define ownership of intellectual property rights. For example, when you have developed the product or technology before they arrived, or are in the process of developing and they will play a key role in the process, get advice from a lawyer on the best way forward. It is also a good idea to have an open conversation about ownerships. Some feel that bringing a lawyer in between can set the wrong tone or display a lack of trust, however, making the new co-founder comfortable and okay with the clauses is extremely important. It is a journey for you both together where they are ideally going to play an equal role in the success of the company. Ensure that you conclude with a decision that makes everyone happy. Lessons can be learnt from what happened with Facebook’s founding team, for instance.
- Think about what’s best for your startup: Also, ask your lawyers for clauses that can protect you as well as your company and others involved in case of non-performance or damages caused by co-founders or even employees of the company. One method that is sometimes used in Canada for instance, is delaying equity ownership and voting rights until a certain period. This can sometimes be practiced by investors as well regarding capital injection as they want to be sure of the money they’re putting in will generate returns.
- Don’t shy away from seeking help: The legal system is built to help you and your business succeed so don’t let it intimidate you. The law is there to protect people, not hurt them. Entrepreneurs often shy away from approaching lawyers, as it can seem expensive or incite discomfort. However, getting a lawyer on board or getting the right consultation at the right time can often be crucial. Furthermore, it is not advisable to formulate legal contracts yourself.
- Consult Pro-bono lawyers: If you are afraid to take a leap with a large law firm, start small. You can also sometimes find legal advice for free during legal aid sessions. Or have the consultation fees reversed when commissioning legal work. These are not at all for certain, but there have been cases where this is true.
- Use technology to your advantage: There are LegalTech startups that are being established, who are looking to make contracts and legal information much more accessible using technology. In time, this could bring about more cost efficiency and accessibility to the sector. Until then, it is better to err on the side of caution and let the experts handle what they do best, while you can focus on building your business.