Five Legal Questions Start-up Founders Should Consider

The Atom Team

The legal side of starting a new business can be difficult to navigate, and many entrepreneurs will have a hard time understanding how decisions they make in the beginning might affect them further down the line. If you’re thinking about launching a start-up, here are the five key questions you need to think about before you get your new business venture off the ground.

What do you need in a shareholder agreement?

Before you even put pen to paper on a shareholder agreement, stop for a minute and think about why you’re getting into this business, what you want to get out of it and how it’s going to work. You should also take the time to do your market research, explore funding options and work out who is contributing what to the business. 

Once you’ve thought all these things through, then a written shareholder agreement can be arranged. This should outline an individual’s roles and responsibilities, allocating jobs and organising who owns what. Even if there are only two co-founders, it may not be an even 50/50 split. This is something which needs to be discussed before it’s documented.

What if something goes wrong?

Things do fall apart, even if you’ve tried your best to make things work for your business. This is why it’s so important to have that shareholder agreement in place, which should have outlined an exit strategy if someone has decided they’re walking away.

The most important thing is that any issues are addressed swiftly, because the longer you avoid discussing a problem, the worse it’s going to get. Always approach ‘the big conversation’ in a non-confrontational manner, and use documented evidence to substantiate what you’re saying. If you don’t feel you can have an open conversation with someone, then they’re probably not the right person to be going into business with.

What can you do to protect your ideas?

If you’ve had a brilliant idea, the last thing you want is for someone else to get their hands on it. That’s where Non-disclosure Agreements (NDAs) come in. These prevent people passing on your ideas or passing them off as their own, and these written documents can be as detailed as you feel they need to be.

You can also fall back on patents and trademarks, but bear in mind that they don’t protect an idea, merely the expression of it. Trademarks and patents also take time to put in place, so always make sure you time and date stamp any documents relating to your idea as added protection. Intellectual property rights don’t come cheap. Factor that into your budget and remember that they’re not water-tight.

How do you raise investment?

Receiving investment always entails giving up some control over your business, so think long and hard about how much you’re willing to part with in order to secure funding.  The vast majority of people who invest in your business do so not from a shared passion for your ideas, but because they want to see a return on the money they’ve loaned you.

Make sure you are explicit in telling them there are no guarantees you will be able to give them back their money and some profit. You don’t want to have made any documented, cast-iron promises on something you may not be able to deliver.

What should you put in a tech contract?

If you’re relying on a third party to deliver your software, then you want to make sure you have a solid tech contract in place. This needs to outline what you will pay and stipulate the time frame in which you expect them to deliver. Always set a deadline which is reasonable and won’t disrupt your development plan if it’s not achieved.

Before you even contemplate beginning development, have a well-planned project brief. This gives you a chance to explore time frames, think about what exactly you want and why, and work out if things could be done better. This should influence your tech contract. If you rush in too quickly, you may regret not having taken the time to plan properly beforehand.

The legal side of business is something you can’t afford to get wrong, so check out our podcast conversation with expert Rustam Roy here. For more information on the services provided by Atom CTO, simply visit our website.

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