Startup Legal Mistakes part 1
I am back with a new topic and today it will be something different, because I will try to make a summary of some grand mistakes I have seen in the startup business.
Founders and executives very often focus solely on the company’s product or idea, but some of them neglect the legal point of view of running a business. As long as there is no hiccup or a problem nobody even acknowledges, that there are ticking time bombs. A company and especially a startup has to focus on many different areas such as protecting intellectual property, terms and conditions, and various employment or freelancer contracts.
- Establishing a company and bylaws
Many people neglect the basics of incorporation of a company. I need to stress out, that such basic documents needs to be tailored to the needs of the company. In the early stages the problems may even not emerge. However as soon as a first equity financing is approaching, the investors will make a thorough due diligence. Not having tailor made articles of association and bylaws can lead to a cancellation of funding or even a takeover of the company when not being careful.
- Right structure of a company
Documents that set the foundation of your company involve how and under which structure your business is registered, specifically the Articles of Association, thereby setting out how your business is going to operate in the future.
If you want to incorporate your business it is important you do it as early as possible and you definitely should think about what structure to use.
Do you want to be a freelancer, a limited liability company, joint stock company or joint venture? Choosing the right structure makes business significantly easier. See also Ltd., or s.r.o., that is the question.
- Data regulation compliance
Have you heard of GDPR? Yes, but you don’t care? And you have a startup? Well, then you could be heading for trouble.
If you collect or process any kind of data in your start up you need to be compliant with the General Data Protection Regulation (GDPR).
GDPR compliance can be a lengthy and costly process if you neglect setting up rules and internal processes in the beginning. GDPR has to be taken into account before starting marketing campaigns and the storage of customer data otherwise the company can face substantial fines.
As this matter is of grave importance and also extensive I will try to cover the basics in one of the next posts dedicated specifically to GDPR.
In our next posts about legal mistakes that startups often make I will talk about protecting IP, liability and agreements.
If you have any question, feel free to contact me.