5 LEGAL TIPS FOR STARTUPS
Updated: Jan 8, 2020
(Caution: This Article is meant for those who are dead serious about their idea and have got the fire and the grit to become a successful startup, not meant for those who intend to follow the fashion and the fad of the startup.)
TIP 1: Form a Private Limited Company
People all over the internet will advise you to choose the right kind of structure, which is vague, because there are numerous kinds of entities that could be formed, but the point of confusion always remains. That is, which kind is most suitable for a startup, the answer to that is private limited company. Why? Because it is the most structured form of doing business and most importantly it is the favorite form of entity for potential/future investors.
Brownie Point: The Startup India Scheme, recognizes private limited company as a form of entity which can be recognized as startup as per the DIPP guidelines.
TIP 2: Co-Founders Agreement
Minimum 2 persons are required to form a private limited company. If the other person is your mother/father/sister/brother, then this tip is not for you. But, can prove to be useful in the future. For others, co-founding a startup is easy, but arguments, disagreements and ego clashes are bound to happen, there is no escape. Hence it is suggested to be safe, then sorry. Enter into a Co-Founders’ Agreement, it shall solve two issues, first there shall by clarity about the expectations the founders shall be having from each other and second, the scope of work for each founder shall be clearly defined. To get a fair idea about what terms are covered in a co-founders’ agreement, you can go to your favorite place ‘Google’ and browse through few agreements. Although, it is advised to get it drafted by a legal professional, artificial intelligence is not that intelligent in advising, currently.
Brownie Point: Following this tip shall help you avoid unnecessary litigation expenses and hurtful dead ends.
TIP 3: Confidentiality and Non-Disclosure Agreement
No it is not a toothless tiger and no, everyone is not your friend who will keep everything confidential. Always remember the efforts that you have put in thinking about the product and manifesting it into reality, now imagine someone copying it. It will be disastrous. Get one NDA template made, and use it time and again before disclosing about your product or sensitive details about your startup. I am not suggesting you to send an NDA to the potential investor before you send him a pitch deck that will be embarrassing. But, in day to day dealing you will be required to share certain confidential and sensitive information with probably a strategic partner or a marketing consultant or an ad agency, ensure to get the NDA signed first and then proceed with the conversation.
Brownie Point: I do not intend be rash, but people cheat. Hard fact of life, people cheat, copy and misuse information. Executing an NDA will protect you and your startup from current and potential competition.
TIP 4: Get Startup Recognition
No rocket science here, and most importantly it is free. Go to DIPP Website and register your company as Startup. There are few benefits for recognized startups like 80% reduction in cost of filing patents, recognized startups can apply for government tenders since they are exempted from the “prior experience/turnover” criteria applicable for normal companies, no time consuming compliance's, etc.
Brownie Point: Startup Recognition in addition to providing benefits also provides an edge over other companies.
TIP 5: Intellectual Property Protection
It is not necessary that your product is unique and patent able. But, this could be said certainly that the name/logo of your startup or brand of your product shall be unique. The names and the logos are covered as trademarks and it is advised to get the trademarks registered, in order to maintain the uniqueness and prevent the same from being copied. You could be the next Reliance or Apple or maybe Tesla, but failing to get trademarks registered will snatch away the opportunity from you.
Brownie Point: Protect it before you lose it.