Being the founder of a startup is one of the most exciting career opportunities available. Starting a business feels less like a chore and more like a rewarding experience when you have an innovative idea, the drive to put it into action, and a team that shares your values. When you’re excited to see your idea come to life, even working overtime doesn’t seem so bad, and obstacles become exciting challenges. There’s something euphoric about startups, and we as a society have a tendency to idealize startup culture as exciting, fun, and unique.
However, no matter how exciting they are, startups are still subject to regulations. Not just “boring” corporations must adhere to corporate regulations, and failing to do so could jeopardize your startup’s success.
Unfortunately, many startup founders choose to put legal responsibilities in the background and focus solely on the product, which has resulted in an increase in startup lawsuits. Needless to say, when you’re just getting started and money is tight, a lawsuit can be crippling and even put your business out of business. Most startups don’t have the budget to hire world-class lawyers to avoid legal penalties or at the very least get back on their feet after a lost lawsuit.
The justifications for not paying attention to legal matters vary, but none of them holds up in court:
- I had no idea I had to do this (not knowing you had to do something is not an excuse, especially now, in the age of information where you can look up all legal requirements online).
- I was so preoccupied with other processes that I forgot about the legal stuff (as hectic as a founder’s life is, legal responsibilities are among the highest priorities).
- I thought there was no need for legal stuff because everyone in this startup is my friend (once you register as a company, legal requirements apply to everyone, even friends and family).
- We simply did not have the funds to take care of this (understandable, but the fine is more expensive).
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So, when it comes to launching your business, avoid these costly legal blunders:
1. Failure to establish who owns what in the company in writing
A lot of people start businesses with their friends. There’s a Wozniak for every job and a Brin for every Page. It can all be a lot of fun at first, but as history has shown, co-founder relationships can deteriorate over time, not because someone wants more money, but because you will both grow and change your ideas and personalities. It’s helpful to have a written agreement to refer to if and when this happens. Otherwise, it’ll be a game of “he said/she said” that will raise tensions within the company, split it into two sides, and possibly lead to the company’s dissolution.
Layout the terms of your relationship from the start to avoid messy Zuckerberg/Winklevoss co-founder splits each co-percentage founder’s of ownership, rights & responsibilities, what happens to the company if one of the founders leaves, who make key decisions, and so on. Putting your friendship in legal context may seem strange at first, but it will save you a lot of trouble in the long run.
2. Failure to uphold your duty of care to employees
As an employer, you owe a duty of care to all of your employees. That means you must take all reasonable precautions to ensure that everyone is safe at work, that they are properly trained to operate specialized equipment, and that they do not injure themselves. Many startup founders ignore this responsibility and pay a high price as a result. Of course, no one wants workers to be injured, but they are unaware of their responsibilities, which leads to costly accidents.
Modern employees, according to the experts at How To Sue, are aware of their rights and are not afraid to pursue legal action if they are injured at work. The employer is legally responsible if an employee slips and falls on a dirty floor or hurts their hand on a piece of heavy machinery that shouldn’t have been there. Employees who injure themselves while using equipment that should have been replaced, overexertion, or being assaulted by another employee are all examples. Even though health and safety may appear to be a tedious formality, it is critical, and no employee should be concerned about their health while at work.
3. Neglecting to look into intellectual property issues
After months of wracking your brain, coming up with a great product, logo, or company name can feel liberating, but just because you came up with it yourself doesn’t mean it’s original. Unfortunately, many entrepreneurs start their businesses with big plans only to find out years later that their company name or unique product idea has already been patented. Intellectual property lawsuits are expensive, and most of the time, the party who registered their name, idea, or product first wins, while the other is forced to pay hefty fines or even cease all operations. So, before you put a lot of time and money into your company, do a patent search and see if your company name and website name are unique.
While you’re at it, try different spellings of your domain name. For example, the exact spelling you’re thinking of might not be available, but a similar one is, which could result in legal issues as well as branding issues. Unfortunately, even if they aren’t direct competitors, many corporations sue small businesses because their names are too similar to theirs. It goes without saying that if you’ve created a new product or technology, you should patent it. It’s a lengthy legal process, but it will ensure that no one else steals your idea in the future.
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