What are top legal mistakes that early stage startups should avoid?


#1

These are the top most mistakes that early stage startups usually end up doing with.

Entity: They fail to decide what sort of entities they want to start like a sole proprietor or partnership firm or a company. Then the initial investment or the capital amount required for it.

Founders’ Agreement: If in case the entity is other than a proprietorship, they fail to have a proper agreement between the partners/co-founders/directors. Any entity needs to have a formal agreement in place between all the founders of the business as early as possible.

IP: They fail to protect the intellectual property of the business. Intellectual property is one of the most valuable assets a company owns. The Intellectual property of a firm includes Patents, Trademarks, Copyrights, NDAs (Non-Disclosure Agreements), Invention Assignments.

Employment contract: They fail to have proper employment procedures. Employment is a very common area where inexperienced startup founders make mistakes. There are a lot of issues you should think about before hiring someone.

And finally they fail to hire a lawyer.


#2

Is it valuable while raising funds too?
Last week I met few people, and they were able to convince me that IP is of no value while rasing funds since your competitor can easily copy your product. Also I don’t think any startup thinks about/plans to Patent, Trademark, copyrights their tech.


#3

That’s not really the case.

Trademarks and patents should be and are taken seriously. Nearly all startups trademark their brand. You can check out the trademark registry here if you have any doubt: http://vakilsearch.com/trademark-search.

Startups will also patent their products, if they’ve built something original. You can about this here.

Copyright is not as important, unless you’re in the business of producing original content (filmmaker or a tutorial website, for example).


#4

Do NDAs have any relevance? When talking to early employees, for example, should I get them to sign an NDA before divulging valuable information?


#5

It depends on the situation. NDAs can act as a significant deterrent.