by Laura Costello
It is important for all startups to ensure that they fulfill all necessary legal requirements before beginning operations. Fulfilling these requirements early, ensures that your startup will not be subject to serious and business ending legal ramifications later.
Consultation with legal experts in the field, such as experienced business lawyers in Melbourne, can ensure that you avoid these 5 monumental and costly legal mistakes commonly made by startups:
1. Choosing the incorrect business structure.
Choosing the right business structure for your startup will have important implications on the cost, flexibility and tax consequences of running your business. It is therefore important to give significant consideration, in consultation with an experienced business lawyer, to which structure is most appropriate for your unique business. A common mistake is for startups to consider only their short term business goals, rather than choosing a legal structure that will facilitate their transition into a bigger business.
2. Failing to create a clear and detailed business partnership.
If you are developing your startup with a partner or co-founder, failing to create a detailed business partnership can cause serious legal ramifications later. It is important to agree early on a number of important considerations. These include;
- The percentage of the company owned by each partner
- Any conditions of ownership, such as continued participation in the business
- Rights to buy back shares of co-founders if they decide to leave the company
- Salary entitlements
A carefully constructed Partnership Agreement will set out terms for the management of company profits, detail the role of individual partners and how the company can be wound up to avoid legal issues from arising later due to ambiguous agreements.
3. Taking appropriate action for intellectual property protection.
Many startups are created based on a unique product, technology or service. Depending on the nature of your startup a patent, copyright or trademark application can successfully protect your ideas and developments from other companies. Failing to take appropriate steps to protect your intellectual property can leave you vulnerable and without any legal standing should another business take your unique idea. Furthermore, before developing or marketing a product that your startup considers as unique, it is important to first research and ensure that you are not infringing on the patent, copyright or trademark of another business.
4. Failing to research state and national legal obligations.
Depending on the nature of your startup as a goods or services provider, you may be required to hold specific licenses, permits or have specific laws and regulations that will govern the operation of your business. It is important to be aware of any specific legal obligations that may exist in regard to the specific nature of your startup. An experienced business lawyer will be able to inform you of any state or national laws or guidelines that you will need to adhere to.
5. Failing to familiarise themselves with Employer responsibilities.
If you intend to hire employees, it is important to familiarize yourself with key standards that exist at a state and national level. Your employees will have different rights and entitlements, including sick leave, annual leave and superannuation. If you fail to uphold these rights, you will become liable both legally and financially.
It is therefore important to draft appropriate employee contracts with an experienced business lawyer that stipulate your exact conditions of employment, non disclosure clauses and the payment of wages that are consistent with the minimum standards and awards that exist for your industry.
Developing a startup is an incredibly exciting time for any business entrepreneur. It is important to understand the important legal considerations involved and avoid these costly and common mistakes, so that later legal ramifications do not slow your business down.
Laura Costello is in her fourth year of a Bachelor of Law/International Relations at Latrobe University. She is passionate about the law, the power of social media, and the ability to translate her knowledge of both common and complex legal topics to readers across a variety of mediums, in a way that is easy to understand.
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