Legal Checklist for Startups and SMEs - A Complete Guide

Legal Checklist for Startups and SMEs - A Complete Guide

Founders of a startup or SME often make some classic legal mistakes at the beginning of their business. But, without a doubt, the mother and origin of all these mistakes is thinking that legal/legal issues can be solved later.

” After the MVP validation. After we get initial traction. After funding. D e p o i s e.”

The mantra of “move fast and break things” very widespread in Silicon Valley may even work for things that can be broken and later fixed, like the bugs in your app. Applying this mindset to the legal issues of your startups & SMEs is as safe as playing Russian roulette.

Believe me, the final price is not worth the risk.

In this context, I list here some points that you should keep in mind when creating your startup or SME. Some of them are mandatory for it to exist. Others will bring security to it, you, and your partners. Many of them are simple to elaborate and can save you a lot of headaches.

  1. Create a partnership agreement.

A partnership agreement is a document that will govern the relationship between the partners and founders of your company. It is not a mandatory document for business existence, but it can save you a LOT of headaches. It will define issues such as rights and responsibilities of each partner (and what to expect from each), procedure for making key decisions, what to do if a partner dies, vesting, preemptive rights, tag and drag along, among others.

In short, the partners’ agreement deals with topics that can generate disagreements in the future and that nobody wants to discuss at the beginning of the company. But, believe me, it is better to have them defined from the beginning than to have to do it when the situation is not good and a problem appears.

Imagine having to define objective criteria for the “dismissal” of a founder who is not performing well? If issues like these are dealt with from the beginning, when everything “is flowers”, it is much easier to make a decision when the problem appears (remember the Facebook and Eduardo Saverin case? The millions of dollars in litigation would have been saved with a well-designed partner agreement from the beginning of the company).

  1. Protect your intellectual property.

Intellectual property encompasses both “copyright” and “industrial property” which involves the trademark, patents, industrial designs, trade secrets, among others.

Since startups are innovative companies, protecting your intellectual property is essential for your business. Many investors even confirm whether you have intellectual protection for your brand, logo, software, etc, before making an investment, since this can directly influence your valuation. Try to understand this process as soon as possible, because it is not simple and usually takes a long time (more than 2 years).

  1. Confirm that your business is regulated by a specific entity or law.

Depending on the type of your business, you may need permits or licences from some agency or have a specific duty governed by law. For example, many fintechs must be aware of regulations from the Financial Conduct Authority (FCA) and often obtain permits to operate.

Besides obtaining the necessary documentation to be able to operate, you need to closely follow new regulations that these agencies issue. For example, last year the FCA issued a new regulation that made credit fintechs, which previously were not regulated by the agency, become regulated.

  1. Create the terms of use and privacy policy of your platform/website/application.

Terms of Use and Privacy Policy are two basic documents that every technology company should have. They serve to limit your product’s liability to your customer. Without these documents you may be subject to legal risks that could easily be mitigated.

Terms and conditions of use is an online legal document that, in practice, works like the user manual for your platform/software/application. It will contain, in detail, the description of your product and service, what the rules are for using it, the terminologies you use, among other points.

The privacy policy, on the other hand, is a document that informs your customer/user how the information you capture from him is used and stored.

  1. Have a lawyer who specialises in startups.

Lawyers who have no experience in dealing with startups and entrepreneurs will probably focus on the wrong or not so important points and will fail to identify the biggest risks in each situation.

“It is better to hire someone who is already used to playing the game, who knows what is standard and what is not, who will be able to conduct negotiations and close deals”.

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