The Top 10 Startup Legal Issues: Navigate Them Like a Pro

In startup world, the possibilities are endless and the legal minefields are plentiful. As a founder, it's important to be aware of the legal issues that could derail your business. But don't worry, we're here to help.

In this blog, we'll cover the top 10 startup legal issues and our thoughts on how to avoid them:

1. Choosing the right business structure

The first legal issue that startup founders face is choosing the right business structure. This is an important decision because it will affect your personal liability, taxes, and other legal obligations.

The most common business structures for startups are:

Sole proprietorship: This is the simplest business structure, but it also offers the least protection. As a sole proprietor, you are personally liable for all of your business debts and liabilities.
Partnership: A partnership is a business structure that is owned and operated by two or more people. Partners are personally liable for the debts and liabilities of the partnership.
Limited liability company (LLC): An LLC is a business structure that offers limited liability to its owners. This means that the owners are not personally liable for the debts and liabilities of the LLC.
Corporation: A corporation is a business structure that is separate from its owners. This means that the owners are not personally liable for the debts and liabilities of the corporation.

Which business structure is right for you will depend on a number of factors, including your personal liability concerns, tax goals, and growth plans. It's important to consult with a lawyer to discuss your specific situation before choosing a business structure.

2. Protecting your intellectual property

Intellectual property (IP) is a valuable asset for any startup and includes things like trademarks, copyrights, and patents.

It's important to protect your IP so that no one else can copy or steal it. The best way to do this is to register your IP with the appropriate government agency. For example, to register a trademark in the UK, you would file an application with the Intellectual Property Office (IPO). To register a copyright in the UK, you would also file an application with the IPO.

If you don't register your IP, you may lose your rights to it. For example, if someone else uses your trademark without your permission, you may have difficulty stopping them.

Intellectual property is arguably one of the most valuable assets for most startups. This is because IP can be used to create a competitive advantage and to attract investors. However, IP can also be difficult to protect and expensive to enforce.

3. Drafting and negotiating contracts

As a founder, you'll likely be entering into a number of contracts, including contracts with employees, vendors, and customers. It's important to have a lawyer review all of your contracts before you sign them. This will help to ensure that your interests are protected.

When drafting and negotiating contracts, it's important to keep the following in mind:

Make sure that the contract is clear and concise.
Make sure that the contract covers all of the important terms of the agreement.
Make sure that the contract is fair and equitable to both parties.
Make sure that you understand all of the terms of the contract before you sign it.

4. Complying with employment laws

If you have employees, you need to make sure that you are complying with all applicable employment laws. This includes laws related to minimum wage, overtime, discrimination, and harassment.

Don’t hesitate to get a lawyer review your employment practices to make sure that you are in compliance with the law. We can recommend speaking with Edua Effiom to help, as she specialises in startup support for all things relating to employment law and HR.

5. Raising capital

If you need to raise capital for your startup, you'll need to comply with all applicable securities laws. This includes laws related to the issuance of securities, such as stocks and bonds.

A legal professional can suitably advise you on the best way to raise capital for your startup.

6. Protecting your privacy

As a founder, you collect a lot of data from your users. This data may include personal information, such as names, addresses, and email addresses.

It's important to protect your users' privacy by complying with all applicable privacy laws. This includes laws related to the collection, use, and disclosure of personal information.

7. Complying with regulations

Depending on your industry, you may need to comply with a number of regulations. For example, if you're in the healthcare industry, you'll need to comply with HIPAA regulations.

It's important to consult with a lawyer to determine which regulations apply to your startup and how to comply with them.

Founders often underestimate the importance of compliance. Compliance with laws and regulations can be expensive and time-consuming. However, it's important to comply with all applicable laws and regulations to avoid legal problems and fines.

8. Managing risk

Founders face a number of risks, which can include financial risk, legal risk, and reputational risk.

It's important to develop a risk management plan to identify and mitigate these risks. Your risk management plan should include the following steps:

Identify your risks. What are the biggest threats to your startup?
Assess your risks. How likely is each risk to occur? How severe would the impact be if it did occur?
Develop mitigation strategies. How can you reduce the likelihood of each risk occurring? How can you reduce the severity of the impact if a risk does occur?
Implement your mitigation strategies. Take steps to put your risk management plan into action.
Monitor and review your risk management plan. Regularly review your risk management plan to make sure that it is still effective.

9. Protecting your personal assets

As a founder, your personal assets may be at risk. This is because you may be personally liable for the debts and liabilities of your startup, depending on the business structure that you choose.

There are a number of things that you can do to protect your personal assets, such as:

Choosing the right business structure. As mentioned above, some business structures offer limited liability to their owners. This means that the owners are not personally liable for the debts and liabilities of the business.
Purchasing personal liability insurance. Personal liability insurance can protect your personal assets from lawsuits arising from your business activities.
Creating a personal asset protection trust. A personal asset protection trust is a legal entity that can be used to hold your personal assets. This can help to protect your assets from creditors.

10. Planning for exit

At some point, you may decide to exit your startup. This could involve selling your startup, taking it public, or winding it down.

It's important to plan for your exit early on. This will help you to maximise the value of your startup and to minimise the risk of legal problems.

When planning for your exit, you should consider the following factors:

The type of exit that you want to pursue.
The timing of your exit.
The tax implications of your exit.
The legal implications of your exit.

Conclusion

Starting a business is an exciting and challenging journey. But it's important to be aware of the legal issues that could derail your business, thinking carefully about ways to minimise your legal risk and increase your chances of success.

If you need any help regarding any of the issues we’ve highlighted, then come chat with us and we can make a personal introduction to a legal profession that can help you out.