Dec 01, 2016 11:14 AM IST IST | Source:

6 questions to ask your legal team

Start-ups often bandy about the term ‘fail fast, learn fast‘, as if there is nothing to be gained from professional help. In reality, exactly the opposite is true. We regularly talk matters over with entrepreneurs who wish they reached out to a lawyer sooner.

Start-ups often bandy about the term ‘fail fast, learn fast’, as if there is nothing to be gained from professional help. In reality, exactly the opposite is true. We regularly talk matters over with entrepreneurs who wish they reached out to a lawyer sooner. And, yes, neither Uber nor Airbnb would have gotten off the ground had they followed the rules, but both those companies were taking calculated risks -- not ignoring their legal team altogether.

Getting advice from a lawyer is particularly important in the early years, unless you’re a seasoned businessman. A veteran lawyer can help you see risks in areas you may have seen no problem in. So, let’s get to it, then. Here are six questions you should seek legal advice on during the early years of your business:

Should I worry about a lawsuit? How can I protect against it?
All businesses are risky. The risk isn’t just that you’ll lose money, it’s that you may lose so much money that you won’t be able to pay it back, or a customer (depending on the business you’re in) may file a suit or the authorities may fine you for a number of reasons; even new hires can file a suit (remember Grofers?). A lawyer would be able to tell you, for example, that a private limited company can protect your personal possessions in any of these cases, as running a business as a sole proprietor would enable any debtors to go after your personal property.

If you’re running a business as a partnership, a lawyer may tell you to get it registered (even though this isn’t necessary) to protect against misdeeds of another partner. A lawyer would also be able to advise you on all the other legal precautions needed to be taken with customers and partners (by signing terms of service agreements, vendor agreements, and so on).

What to consider before bringing investors on board?
Investors are looking, quite obviously, to make money off their investments. And, let’s face it, unless you’ve hit upon a truly unique idea, you need them more than they need you. For this reason, any agreement they present to you will be completely in their favour, with several penalty clauses and absurd targets for you to meet before you get another tranche of the promised funding.

You absolutely need a veteran lawyer to explain these terms to you, particularly how you’re diluting the stock in your company, before you sign on the dotted line. Not doing so would be a big mistake.

Should there be an agreement between the founders?
The most commonly forgotten question, a lawyer would certainly recommend a founders’ agreement. After all, the founders need to agree to various terms in a startup, such as what their roles and responsibilities are, what the vision is for the business and even what would happen to their shares in the company if one of them were to be unfit for running the business.

It makes for difficult conversation, but there are conversations that one too many start-ups have avoided and ended up paying the price. For example, can you imagine how different things would have turned out if Eduardo Saverin (of Facebook) had signed a founders’ agreement with Mark Zuckerberg?

How can I safeguard my intellectual property?
Small businesses have big dreams, but when it comes to spending the few thousands it costs to register their brand, protect their copyright and apply for a patent, they tend to postpone. Given how valuable brands are to a business, this is a silly move. Do you know that Apple is today worth $170 billion as a brand? Some businesses (Kingfisher Airlines, for example) are even able to take loans by leveraging brand value alone.

A lawyer would be able to tell you when it’s time to safeguard your intellectual property. A lawyer would also be there to tell you that when you employ a freelancer to design you logo, you should sign an agreement with him/her ensuring that you own the rights to it.

 What should I keep records of?
Start-ups are, necessarily, chaotic places. In the first year of operations, they go from a tiny bedroom in a founder’s home to a small office to a larger one that finally fits everyone within its four walls. During all of this, things will go missing. But there are a few records you absolutely cannot lose. These include receipts and records for tax filings, any compliance filings and even other documentation.

Your lawyer will also be able to tell you what registrations you require every step of the way. For example, where you need a profession tax registration and where you don’t, whether you need a brand authorisation certificate for selling particular products.

How can I keep my personal assets safe?
Many first-time entrepreneurs find their personal lives mixing in with the professional ones. They use personal possessions for their business, will use their own credit card to pay for office equipment, have their business registered to their home address, among much else. This may be fine (and even expected) very, very early on, but it needs to change quickly. After all, what if a court is unable to see the difference between your personal assets and those of the business, either?

Now, you may be wondering whether all this legal help will involve time and money that could be put to better use elsewhere. But think of it this way: all you need to do before taking any major step is think about the risk you’re exposing your business or yourself and your employees to. If it’s substantial, always seek the help of a lawyer. If it isn’t, go right ahead. Don’t let the suits slow you down

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