Being the founder of a startup is one of the most exciting career adventures you can go on. When you have an innovative idea, the urge to put it into practice, and a team that shares your ideals, starting a business feels less like a chore and more like something rewarding. If you can’t wait to bring your idea to life, even overtime doesn’t seem that bad, and obstacles feel more like exciting challenges. There is something pretty euphoric about startups, and in general, as a society, we tend to idealize the startup culture as fun, exciting and different.
As exciting as they may be, startups are still governed by the law. Everyone has to respect company rules, not just “boring” companies. Failure to do so can shorten your startup adventure.
Unfortunately, many startup founders put legal obligations somewhere in the background and only focus on the product, which has led to a growing number of startup lawsuits. Needless to say, if you’re just starting out and money is tight, a lawsuit can be devastating and even put you out of business. If a company has the budget to hire top-notch lawyers to avoid legal sanctions or at least land on their feet after a lost lawsuit, most startups don’t.
The reasons for neglecting legal issues vary, but none of them are valid excuses in court:
- Little did I know I had to do this (not knowing you had to do something is no excuse, especially now in the information age where you can look up all the legal requirements online).
- I was so busy overseeing other processes that I forgot the legal aspects (as hectic as a founder’s life is, legal obligations are a top priority).
- Everyone in this startup is my friend; I thought there is no need for legal affairs (once you register as a business, legal requirements apply to everyone, even if they are friends and family).
- We just didn’t have the money to take care of it (understandable, but the fine is more expensive).
So when starting your startup, make sure you don’t make these costly legal mistakes:
1. Do not state in writing who owns what in the company.
Many entrepreneurs start a business with their friends. There is a wozniak for every job; There is a brin for each side. It can be very funny at first, but as history has shown many times, relationships with co-founders can deteriorate over time, not necessarily because someone wants more money, but because your ideas and your personality both change over time years will grow as well as change. When and when this happens it is good to have a written agreement that can be referenced. Otherwise, it is a game he / she said that tensions will be high within the company, the business will be split in two and even lead to the company being wound up.
To avoid messy Zuckerberg / Winklevoss-type co-founders breakup, set the terms of your relationship from the start: percentage of ownership, rights and obligations of each co-founder, what happens to the company if one of the founders leaves, who meets important decisions and so on. It might feel strange to put your friendship in a legal perspective, but it will save you a lot of trouble down the line.
2. Failure to comply with your duty of care towards employees.
As an employer, you have a duty to care for everyone who works for you. This means that you must do everything possible to make sure that everyone is safe at work, that they are adequately trained to use specialized equipment and that they are not harming themselves. Many start-up founders neglect this duty of care and pay high costs for it. Of course, no one intends to injure workers, but they don’t know what to do and that leads to costly accidents.
According to the experts at How To Sue, modern employees are aware of their rights and do not hesitate to take legal action if they have an accident at work. This may not be immediately obvious, but if an employee slips and falls because the floor was dirty or injured on a heavy piece of machinery that should not have been there, the employer is legally responsible. Other examples include employees injured with equipment that should be replaced, overexerted, or attacked by another employee. While health and safety may sound like a tedious formality, it is essential and no employee should feel that their health is at risk while on the job.
3. Forgetting to review intellectual property matters.
It can feel very liberating to come up with a great product, logo, or company name after months of wrecking your brain, but just because you’ve thought about it yourself doesn’t mean the idea is original. Unfortunately, many entrepreneurs go into business with big plans only to find years later that their company name has already been taken or that their unique product idea has already been patented. Intellectual property lawsuits are extremely expensive and most of the time the party that registered their name / idea / product first wins while the other party has to pay heavy fines or even stop all activity. So before investing a lot of time and money in your business, do a patent research and check that your company name and your website name are unique.
While you’re at it, you may also want to check different spellings of your domain name. For example, the exact spelling you are thinking of may not be used, but is similar, and it could create legal issues, not to mention branding complications. Unfortunately, many companies are suing small startups because their names are too similar to them, even if they are not direct competitors. Of course, if you’ve invented a new product or technology, you should patent it. It is a long legal process, but it will prevent other people from stealing your idea in the future.