6 Major Legal Mistakes to Avoid in Startups!

Startups open a world of opportunities for entrepreneurs. But with it, there are occurrences of mistakes as well, what with new practices in place, possibly a new product or service to be tested in the market, different types of marketing techniques to employ, new technology or machinery to try out, and talent recruitment woes. All the more reasons that startup owners put other things in the back burner and concentrate on these more important issues. While this being true, what startup owners overlook are major legal mistakes that could jeopardize their business. So, while you are busy carrying on with your startup woes, keep an eye out for these 6 major legal mistakes that can be avoided.

1. Non-registration of Name, Trademark and Domain Name Issues

While a new startup owner would be getting their website prepared, printing business cards, or getting their logo made, they sometimes forget the simplest of details such as registering the startup’s name. This might happen especially if the startup is going to be registered as a sole proprietorship or corporation. If the company is to be registered as an LLC, then a name check is carried out to ensure that it has not been used before. A startup owner also has to check for any trademark infringement by verifying through the US Patent and Trademark Office or simply checking on Google. They also ensure that the domain names that they intend to use for their website have not already been taken by someone else. [1]

2. Not Signing the NDA

This might be a no-brainer but enthusiastic startup owners sometimes discuss their business ideas with a lot of people especially when getting advice, hiring personnel, or retaining employees. A non-disclosure document or NDA will help ensure that whatever information is shared remains confidential.

3. Unclear Deals with the Cofounders

This is critical. If everything isn’t crystal clear with the cofounders and put in writing, then there would be many legal battles ahead of any startup. Questions like what percentage of the equity would be split amongst the founders, what salaries are the cofounders entitled to, what roles and responsibilities do they play, the amount of cash or assets does each founder invest in the business, etc. [2]

4. No Protection for Intellectual Property

If the product, service, software or technology that a startup owner has developed is unique then appropriate steps need to be taken to protect the property. An article by Forbes describes the following as common protective measures taken for intellectual property by startups.[3]

• Patents
• Copyrights
• Trademarks
• Service Marks
• Trade Secrets
• Confidentiality Agreement
• Confidentiality and Assignment Agreement for Employees

5. Not Having a Proper Employee Firing Policy in Place

Terminating an employee can be risky if the proper procedures are not in place. There should also be accurate documentation. These are some important guidelines in connection with the termination of an employee.

• A handbook that entails all the policies and the company’s intent to act lawfully
• Documented warnings to employees in the case of violation of company policies
• Exit interviews
• All payment dues should be cleared before the employee leaves with the employee signing all documentation
• Ensure that the employee does not have access to company emails, voicemails, etc.
• Ensure that the employee maintains confidentiality in regards to any projects or assignments undertaken even after they leave the company

6. Not Having the Right Legal Counsel

It’s understandable that sometimes startup owners become stingy and try to bargain and get legal counsel at cheaper costs. Sometimes they also take legal counsel from acquaintances or friends. But having the right legal counsel is absolutely essential, especially since a startup might face different legal issues and ‘one size fits all’ legal counsel might not be the best idea. So, a good idea would be to hire lawyers or law firms who would have vast expertise in differing legal matters. The following legal areas should be of prime importance to a startup.

• Contract law
• Employment law
• Corporation, Commercial and Securities law
• Tax law
• Intellectual Property law
• Data Security, Cyber and Privacy law

These are the 6 broad legal mistakes to avoid. Would you like to add to this list? Then tell us in the comments section below. And bookmark Alumni Insider for more articles like this. Also, you can find legal counsel, real estate experts, investors, healthcare professionals, and influencers on Alumni Alliances, a professional alumni network. Why don’t you check it out? 

References:
1. Top 8 Legal Mistakes Made by Startups
2. 10 Big Legal Mistakes Made by Startups
3. 15 Big Legal Mistakes Made by Startups