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A successful start-up is always the result of the synergy of several interrelated areas. Focusing on a business idea, young entrepreneurs often do not pay attention to the legal side of the business, which in the future can lead to negative consequences, up to the loss of the project. For this reason, it is essential to have experts like business consulting firms in Delhi working on your side right from the beginning.
To give you an overview of the mistakes you should avoid, today, we will talk about the main legal mistakes that fast-growing start-ups make.
Mistake #1: Using “Standard” Internal Documents
The stage of opening a company can be considered the first, but the most significant step towards the implementation of the project. The founders need to decide on the jurisdiction of the future company – the country of registration.
If a start-up is focused primarily on attracting foreign investment or going abroad, structuring a business in a particular country is patriotic, but hardly reasonable.
Regardless of the choice of jurisdiction, typical mistakes can be made already at the first stage, which often leads to problems in the future.
The most common of them is the registration of a company using “standard” constituent documents (charters, articles of incorporation). Follow the rule: what is suitable for an ordinary company at the registration stage is not suitable for a start-up that will work in foreign countries as well.
Pay attention not only to the company’s charter but also to the development of internal regulations, for example, on the board of directors, the audit committee, the auditor, etc.
Elaboration of these issues will significantly reduce the risk of a corporate conflict. Prevention of the problem is possible precisely at the stage of development of the company’s internal documents, for example, a corporate agreement.
Do not forget that the corporate structure and history of a start-up are always the focus of potential investors.
When considering the possibility of joining a particular project, investors conduct due diligence about the company’s documentation related to the above issues. As a result, the purchase of a company by an investor may directly depend on how competently the corporate “architecture” of a legal entity was built and whether it carries legal risks.
Mistake #2: lack of protection of information and intangible assets
As start-ups develop, they may face key employees leaving or their dismissal (both of their own free will and at the will of the employer).
Having a set of knowledge gained in the work, former employees can use them when starting their own business or provide valuable information to competitors. This can lead to the fact that a successful company will lose market leadership or cease to be in demand.
These risks can be leveled if the company pays attention to information security and protection of intangible assets: business reputation (goodwill), results of intellectual activity, and labor resources.
For example, it is advisable to develop and approve a trade secret clause, as well as a non-disclosure agreement (NDA), non-compete agreement (NCA), and non-solicitation agreement (NSA). It should be noted that the legitimacy of these agreements and the possibility of their implementation depend on the legal regulation of the country where the company is located.
A single person can’t know all the risks of managing a business, and this is why we recommend you entrust this work to business advisory firms in India and let them point out and solve all your business problems in advance.