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5 Key Legal Considerations Prior to Starting a Business

5 Key Legal Considerations Prior to Starting a Business
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Starting up is hard enough without legal trouble. You need to figure out a business model, find key employees, build partnerships and convince early customers. You obviously don't need court trouble, too. And yet, several entrepreneurs are willing to risk it all by ignoring legal processes completely. This is a terrible move because, should you have reason to take a matter to court, it will eat into your time and slow your business down. The solution is, of course, to ensure minimal legal damage with all stakeholders. Let's find out how this can be done.

Founders' Agreement

You may be friends with your co-founders but things can go very wrong when you start a business together. You may disagree about your roles, your vision for the company and even compensation. You need to discuss each of these points carefully. You even need to discuss what happens in case on of you decides to leave the company. It makes for uncomfortable conversation but it needs to be done. All that you and your co-founders agree on should be detailed in a Founders' Agreement. What is written in this contract will determine the outcome of any disagreements that may arise between the co-founders.

Non-discosure Agreements

Early on in your business, you'll need to disclose your business idea/model to several people. Some of these may be potential employees, others will be people from the industry you're trying to disrupt. You may also be meeting with potential investors and perhaps need to share some information with consultants. If you believe your start-up truly is destined for greatness, you're making a mistake not signing an NDA before disclosing anything about it. You may feel awkward asking them to sign one, but it's part of the game. If they're professional, they won't mind one bit.

Post-Incorporation Compliance

Immediately after you register a private limited company, which, by the way, is the only business that can raise equity funding, you need to comply with certain rules. You need to appoint an auditor, issue share certificates, the directors need to make certain declarations and much else. Many start-ups simply fail to do so because they're focussed on other matters. This is a poor approach as it could quickly lead to heavy fines from the Ministry of Corporate Affairs. The right thing to do after registering a company is approaching a company secretary to find out all that needs to be done to ensure that you are fully compliant.

Intellectual Property

Brands today can be more valuable than any other component of a company. Apple, the most valuable brand, is now worth $170 billion; Facebook has trademarked both 'Face', which means that no other IT services company will ever be able to feature the word in its name; companies even leverage their brands to take out loans (remember Kingfisher?). This is why a trademark is always to be fiercely protected, from the very beginning. Lose control of it once you’ve got traction and you could end up confusing your customers and even losing them. There are ways to regain control of your IP, but you may end up spending months in the courtroom to prove that your IP is actually yours.

Terms of Service/Privacy Policy

All websites should have a terms of service agreement/privacy policy on their website, available for all visitors to see. This is particularly important if you gather usage information, collect payment or connect visitors to other businesses. A suitable disclaimer needs to be there to ensure that your business isn't accused of wrongdoing frivolously. Your users may not take you to court, but they can cause your business serious harm on social media.

Many entrepreneurs will say that it's very unlikely for a start-up to find itself in court. And, yes, they're right. But this is no reason to ingore applying for a trademark registration or signing an NDA. All it takes is for something to go wrong once. It surely isn't worth the risk.

 
Edition: May 2017

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