10 Legal Tips for Startups - Part 1 of 2 : Managing Risk.

Not getting a lawyer to help you from the outset is like building a house without a solid foundation — the bricks will begin to crumble at some point. Simply put, the “right” lawyer helps you manage risk."  Gigio Ninan, Forbes Magazine

Startups have legal needs but struggle to find the right legal support for their business.

This blog is Part 1 of our refreshed two-part series where we share with you our top 10 legal tips for startups and explain how each of them can help you "build your legal foundations" and put your business on a solid footing. 

Startups have a million and one demands, from product development and marketing, to scaling growth, to hiring and finding the right office. In the midst of that action, searching for appropriate legal advice support may seem like a complex and daunting process. Legal support just does not make it to the founders’ priority lists until a crisis unfolds. 

And let's not forget that traditional legal services can be incredibly expensive. It is natural that lean boot-strapped startups will look to minimise all but essential expenditure, and legal support is often one area where spend is held back.  But at what risk?

Unfortunately, the need for legal advice for startups is real and it kicks in very early on in the life of a business.  As Ninan  noted, if you don't get help from the onset "the bricks [of your house] will begin to crumble at some point".  At that point, most startups will look for and use DIY solutions, which may or may not be a good idea depending on the founders’ appetite for risk and the complexity of the business.  However as Mark Goh wrote in TECHINASIA: "One in 10 startups fail due to legal reasons, many of which could have been avoided if basic legal matters were taken care of properly."

The good news is, being a startup ourselves, we also recognise the need for early legal support.  It's not as hard as you think and there are some great and affordable options in the market.  No longer is a law firm the only option for legal support.  The advent of NewLaw has lead to more affordable flexible people models and support through LegalTech.  With this in mind, we’d like to share with you our top 10 legal tips for startups to help your business start off on a solid footing.

Our 10 legal tips for startups

Legal Tips For Startups #1: Choose the Right Legal Structure

Which legal structure (sole proprietor vs partnership vs limited company) is most appropriate for your business model?  Each structure has different legal consequences for your startup and you as a founder.

Understanding the intricacies of these legal structures is crucial in navigating the legal landscape for startups. It's about aligning your business model with the appropriate legal entity that not only protects your interests but also steers your growth path efficiently. Startups should seek legal advice during the foundational stage can help to ensure you choose the right structure for your business. 

Legal Tips for Startups #2: Put in Place a Founders/Shareholders Agreement

Initiating a startup journey often involves collaboration, and laying down a clear framework for collaboration is crucial. Implementing a founders' agreement or shareholders' agreement at an early stage serves as a preventive measure against potential conflicts that could otherwise impede your startup's progress.

Be sure to speak with a legal professional in setting up a founders’ agreement, as this document delineates roles, responsibilities, equity distribution, and decision-making processes. This is one of the greatest legal needs for startups in the early stages, and a common task for lawyers and legal professionals who work with startups. 

Wasting time fighting with your co-founder is a sure way to sink your startup. Get a founders’ agreement or shareholders agreement in place early.

Legal Tips for Startups #3: Don’t sit on it, solve it!

You have an issue (or you think you will have an issue), get legal advice early and solve (or better prevent) the problem as soon as possible. That will help you save higher costs down the track. This proactive approach not only facilitates prompt solutions but also serves as a strategic measure to prevent escalations that could lead to higher costs and disruptions later. 

Obtaining legal services tailored for startups helps to ensure that potential issues are met head-on, allowing you to focus on scaling your business without the burden of unresolved legal matters lingering overhead.

Legal Tips for Startups #4: Have Key Templates Ready & Audited

Get your key legal templates in place – but beware of ‘free downloads’. Are the agreements appropriate for your business? Do they sufficiently protect your interests? Are they enforceable?

Startups should seek legal advice regarding their templates to prevent any complications. Collaborating with a startup lawyer or legal consultant ensures that the agreements in place are tailored to suit your business requirements, safeguarding your interests and shielding the company from potential vulnerabilities as you grow the business. 

Engaging legal services adept in catering to startups guarantees that your legal templates are not just a formality but are capable of shielding your business from potential vulnerabilities and disputes.

Legal Tips for Startups #5: Beware of Recycling Contracts

 While repurposing or modifying existing contracts might seem time-efficient, it's essential to exercise caution and discretion. 

Relying on old or borrowed contracts without thorough scrutiny could inadvertently expose your startup to unforeseen risks. Tailoring contracts to your specific needs, with the guidance of legal services specialised for startups, ensures that each aspect is meticulously reviewed and aligned with your business objectives.

Legal Tips for Startups #6: Understand your Contracts & Clauses 

While contracts and clauses might just seem like legalese to most founders, comprehending these can be key to the success of a startup. Understanding the contracts and clauses that help your business to operate can help with identifying opportunities and shielding the business from risk. 

Engaging a startup lawyer or legal consultant can be helpful in deciphering your various contracts and clauses and put them into simple terms for founders and employees to more easily understand.

Legal Tips for Startups #7: Protect your IP

Copyright vs patents vs trademarks? Understanding the distinctions between copyright, patents, and trademarks is pivotal in securing comprehensive protection for your IP. Having knowledge on each of these types of IP protection enables founders to make informed decisions about the best protection mechanisms for their assets. 

Founders also have to be wary of international laws regarding IP to ensure that their assets remain protected across borders. When it comes to intellectual property, founders should obtain legal advice to determine which model of IP protection is right for their startup.

Legal Tips for Startups #8: Pick up the books

Get familiar with ‘Legal 101’ – that is to acquire a basic legal knowledge needed for running a business. Familiarising yourself with basic legal principles surrounding business operations empowers you to navigate the business more effectively and make informed decisions. 

Gaining insights into legal fundamentals cultivates an environment where informed decisions are made with a deeper understanding of legal implications. This understanding, coupled with legal advice for startups can serve as a guiding compass in decision-making for your business. 

Legal Tips for Startups #9: Think outside the box

In today's evolving legal landscape, startups have access to a wide range of options for acquiring legal services beyond the traditional avenues. 

Startups should explore all options when seeking out legal services including legal tech solutions and alternative legal service providers (ALSPs), as these can provide significant cost savings compared to traditional law firms. These new legal solutions have helped startups to access legal advice and support that would have been otherwise impossible. 

Legal Tips for Startups #10: Get the Best Bang for your Buck

Ensure you are getting the best value from startup lawyers & legal service providers, especially when working with a constrained budget.  Exploring a range of service providers, including ALSPs, boutique firms, LegalTech solutions, or specialised lawyers or consultants catering to startups, empowers you to align your legal needs with a budget-friendly approach.

Want to know more?  Get in touch with us to learn about how KorumLegal can help you manage your risk and support your start-ups legal needs.


Natasha Norton