Avoid These 5 Common Legal Mistakes Startup Founders Make

Starting a successful startup requires a lot of effort and consideration, especially in terms of legal issues for startups. While developing your product, finding the right team, and creating a proof of concept, it’s important to not overlook legal considerations. Establishing a strong legal foundation is essential for the longevity of your business.

To ensure your startup begins on the right legal foot, consider these five crucial factors related to legal issues for startups:

1. Selecting the correct legal structure: 

It’s important to choose the right legal entity when forming a new business, which is one of the most important legal issues for startups. Options include Registered Company (Public or Private), Sole Proprietorship or Partnership Firm, or a Limited Liability Partnership (LLP). Key factors to keep in mind are tax treatment, individual liability, legal expenses, and growth plans.

2. Having a formal written agreement with Co-Founders: 

In an environment where changes occur frequently, a Co-founders’ agreement can help avoid unnecessary legal hassles and related issues for startups. It should outline key roles and responsibilities, shareholding breakdown, intellectual property rights, remuneration, non-compete & non-solicit and exit clauses.

3. Protecting intellectual property: 

Protecting your intellectual property is crucial to ensure future growth and avoid potential legal issues for startups. Trademarks, patents, and copyrights are essential components of IP, and registering them will prevent infringement. This will allow startups to protect their innovation and compete against large players in the industry.

4. Complying with mandatory registrations and compliances: 

Startups are required to take several licenses and registrations, along with certain compliances which have a lot of legal issues for startups associated with them. These include income tax, GST, Food Safety and Standards, Udyog Aadhaar, and any other industry-specific registrations that may be applicable.

5. Importance of agreements: 

A start-up goes through several contracts with suppliers, employees, and others. It’s important that all such contracts are well drafted to protect the startup from any liability on a future date, and legal issues for startups that may arise. It’s best to engage an experienced legal counsel to help the startup in protecting its interests and capturing the correct language to ensure avoidance of unnecessary legal issues for startups at a later date.

Following these five steps related to legal issues for startups will ensure startups begin on a solid legal foundation and minimize legal risks.

About the Author

Darshana Chauhan

Senior Associate | darshana.c@treelife.in

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