• Ayushi Srivastava

Why do Startups require Lawyers?

Regardless of the work that you need to get done, the people you choose to work with make all the difference. The right team can make or break it and be all the difference between you 'achieving' or 'falling short of' your desired goal. The 21st century is often dubbed as the 'start-up generation'. The basic tenet of entrepreneurship these days is that it is essentially and primarily a team effort, and while elaborating on what and who the team should consist of, the one major factor is that of sound legal advice.


A start-up operates in a dynamic business environment and therefore, it must have access to sound and prompt legal advice on handling compliances under law as well as required under various agreements. Proper compliance is necessary so as to not become liable to pay penalties later on.


Gathering wisdom from the words of Oliver North, “I'm trusting in the Lord and a good lawyer”, thus, an ideal startup team would and should always comprise of a good legal team to help them navigate through the legal labyrinth that becomes a major part of starting a start-up at every step of the way.


The various ways in which startups inevitably require a lawyer are enumerated below-


1. Establishing a Start-up:


The first step towards incorporating your start-up would require you to register your company legally and this would require the help of a lawyer. Running a business without complying with the necessary registrations would be harmful as you would be left to bear the brunt of any tribulation.


2. Intellectual Property Rights:


Cases witnessing trademark infringement and passing off actions are filed almost on a daily basis, and if you are a new start-up looking to embark your place in the field, the process of getting your trademark secured is highly imperative.


A lawyer well-versed with the IP laws can help you get your trademark registered to save yourself from any unnecessary future litigations and at the same time gives you the right to file a action against anyone who tries to use your trademark and affect the goodwill of your start-up.


3. Founder Agreements:


If your start-up has more than one founder, then it is important to get contracts and agreements drafted by a lawyer to have a clear sense of duties and obligations on each person’s part. Such clear agreements help to avoid unnecessary disputes during the trajectory of the start-up.


4. Keeping up with the Changing Policies:


The government keeps coming up with new legislations every now and then and a normal person is not expected to keep a track of all new developments taking place in the field of law. Having a lawyer also helps you to stay in touch with all the legal developments that might or will affect your area of business. Further, a lawyer can also help you keep track of various policies, schemes and exemptions introduced by the government from time to time which can be availed.


5. Investment and Funding Agreements:


During the inception of your start-up, one of the major requirements that needs to be fulfilled is that of acquiring an Angel Investor or a Venture Capitalist to fund your business idea. This step particularly requires the careful drafting of contracts to secure an ideal Angel Investor or a Venture Capitalist. If the contracts and agreements are not drafted with proper vigilance and legal guidance, then that might derail your funding plans as well.


6. Lease:


It's obvious that a new start-up would require a workspace and at the initial stage they tend to acquire that space on rent or lease before their start-up makes it big. While acquiring a space on lease, agreements/contracts are involved, and having a lawyer to deal with them will make the process smoother and easier. A clear contract at the initial stage itself will minimize the prospects of any problems later on.


7. Website Policies:


The 21st century apart from being characterized as the "start-up generation" is also heavily dependent on the internet age and thus, ensuring your online presence is an equally important aspect in order to attract customers and get recognised. Thus, the next important step would be to make a website for your start-up which again would require careful drafting of ‘Privacy Policy’ and ‘Terms of Use’ amongst other things. They deal with sensitive user information and lets the users know how much of the information provided by them would be stored or used in what ways. Thus, having a clear drafted policy for this matter is necessary as all user information is considered very sensitive.


8. Acquiring Licenses:


Moreover, lawyers help start-ups acquire the essential licenses required by the industry in which the start-up is based. The proper compliances to get the licenses is looked after by the lawyers to streamline the process. Different states have different requirements, and thus a lawyer would help you figure out the nitty-gritties involved in getting the right licenses.


9. Agreements and Contracts:


Another major part of starting a start-up is hiring employees and building an accountable team. Forming proper, complete, and clear employment contracts and HR policies will help, specially in cases where you need to get rid of erring employees or resolve a dispute with one of them. Clear contracts also help in managing expectations and setting obligations.


10. Regular Consultation:


More often than not, a young team of entrepreneurs require right and prompt legal consultations in order to guide them to set sail in the right direction. For instance, many young founders might not know that holding the type of titles such as CEO, CFO, CTO and etc. come with legal duties that must be kept or that something they might be doing can be considered illegal or without the proper authorization. Furthermore, lawyers can be consulted on how to work efficiently with the proper authorities to make sure that the start-up sails more smoothly.


11. Better and Sound Legal Advice:


For new start-ups it is advisable to have an "in-house" legal team from its inception in order to effectively deal with any threating or adverse situations that crop up from nowehere. In such situations instead of finding legal counsel at the end moment, it's better to have an onbaord legal team from the beginning in order to get prompt and sound legal advice.


12. Dispute Resolution


The internal and external dispute resolution becomes much easier if you already have a legal counsel on baord who has been a part since the inception, as it makes him/her well-versed with the case and thereby employing effective tactics to get favourable results.


Conclusion


As such it is nowhere mandatory to hire a lawyer or a legal team in order to incorporate a start-up, but at the same time having the right legal expertise by your side helps you focus better on the other aspects of a start-up. The money invested in proper legal advice should never be considered to have gone in vain, rather it always saves you from bigger loss arising out of any kind of legal trouble, which can lead to never-ending lawsuits and even the termination of your start-up.


Author: Ayushi Srivastava, Paralegal, S&D Legal Associates.


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