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Why startups need lawyers

Why startups need lawyers

Legal & Compliance

Kanti Mohan Rustagi

Kanti Mohan Rustagi

18 Mar 2019, 16:55 — 5 min read

Background: As a startup owner, you cannot afford to disregard the fact that your business is vulnerable to risks. In order to safeguard your business and to ensure its unhindered growth, trusted legal counsel is vital. GlobalLinker member Kanti Mohan Rustagi shares his insights on the importance of sound legal counsel for startups.

 

Have you ever wondered why the founders of Google started their business journey with an attorney? In fact, the most creative and capable entrepreneurs engage a counsel first and then look into opportunities for growth and funding.

 

There are many issues that startups are likely to deal with from a legal perspective. Even though a startup owner may feel that working with a legal counsel is confusing, complicated and expensive, the truth remains that startups do need legal counsel.

 

Let’s examine four reasons why a startup needs to hire a legal expert.

 

1. Doing the right business, the right way

Business always has two sides, doing the right business and doing the right business the right way. While founders choose the right business they want to build, a legal counsel provides the right way of doing such a business. One of the most crucial and foremost decisions startup founders must make is the structure they adopt. Being structured as a wrong entity may restrain the startup from achieving its goals and objectives. Further, doing any kind of business in India requires several licenses and adherence to several laws, which a legal counsel is better equipped to understand and manage. The right legal advice to founders for the corporate structure enables them to align their goals with the structure. Regular legal support mitigates regulatory and compliance risks, enabling founders to focus on their core business activities.

 

2. Creating wealth, brand protection

Creating wealth is another imperative for startup founders and this entails attracting investors and stakeholders. While revenue generation is imperative, wealth is created by creating goodwill and the right brand identity for the business. Therefore, as founders, you should work towards protecting the components of your entity that makes it unique. Everything from the logo, to the colour scheme, to the taglines and products must be protected by way of copyright, trademarks, patents etc. Not having such protections can allow any third party to infringe on your intellectual property and once that occurs, it would make it nearly impossible and an unnecessarily expensive affair for your startup to regain control over such property. Proper legal advice is essential to protect the goodwill of your business and your brand.

 

3. Right documentation to ease potential complexities and issues

Whether it’s a formal agreement between the founders or hiring or engaging an employee, a vendor or a customer, it is imperative to have contracts that spell out detailed relationships, rights, obligations, compensation and other terms between such parties. This is very important as every contract can be tweaked and messed with to favour one side or the other. Timely legal advice for contracts protects the best interests of the startup.

 

4. Raising capital and scaling up

Exponential growth of your startup is often dependent upon external funding. Founders reach out to investors to raise capital and once discussions with investors begin, term sheet is negotiated, due diligence of business is conducted and finally investor agreements are thoroughly discussed and negotiated. Such agreements lay the foundation of the relationship between the founder and the investor and the degree of control an investor will have in the startup by detailing the board structure, voting rights, pre-emptive and shareholder rights and future funding rights.

 

Making sure all these procedures take place under able legal guidance is important else founders may run the risk of losing control. All founders should therefore make sure that they hire a legal counsel right at the inception of their startup venture instead of when they face some legal trouble and this is where the expression, ‘prevention is better than cure’ make perfect sense.

 

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

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