Top tips for startups - getting to grips with legal issues

A startup is a business in its early stages of life. Startups are typically characterised by high uncertainty, and a deep focus on innovation and growth, over other factors. Their main aim is to develop a unique product or service, bring it to market and scale very rapidly.

These types of businesses generally dominate the technology sector, although they can be found in other industries and sectors as well. Young entrepreneurs are generally the founders of such businesses, who finance the operation through personal savings angel investments, crowdfunding or venture capital.

Legal issues that startups can face

When it comes to startup businesses, they face certain unique legal issues that need to be addressed by experienced corporate law firms in Sri Lanka. These include:

·         Business structure: Choosing the most appropriate legal structure for the business is very important according to company secretaries in Sri Lanka. Entrepreneurs can choose between sole proprietorships, partnerships, and limited liability companies. This is an important aspect when it comes to liability, taxation and investment purposes.

·         Intellectual property protection: Securing patents, trademarks and copyrights, in order to protect the business’ innovative product or services, brand identity and content is essential. They should also address potential IP infringement claims from other entities.

·         Employment law: Drafting of employment contracts, non-disclosure agreements and non-compete clauses, as well as compliance with labour laws regarding hiring and firing of employees, their benefits and workplace safety.

·         Funding and securities law: Navigating around the laws regarding raising capital, including the issuance of stocks and shares, etc.

·         Contracts and agreements: Creating and managing contracts and agreements with suppliers, partners, customers and investors. Ensuring the enforceability of such contracts in order to avoid disputes.

·         Licensing and permits: Obtaining the required licenses and permits in order to carry on business.

·         Regulatory compliance: Compliance with industry-specific regulations, such as data privacy etc. Adhering to health and safety, and environmental regulations.

·         Taxation: Understanding and managing tax obligations such as income tax, payroll taxes, sales tax and others. Taking advantage of tax incentives and credits available to such businesses.

·         Litigation risks: Preparing for possible lawsuits including those related to IP infringements, contracts, employment issues and product liability claims.

·         Data protection and cybersecurity: Implementing measures to protect sensitive data from breaches and complying with cybersecurity laws and regulations.

Addressing these above issues together with good business lawyers in Sri Lanka can help startups avoid expensive disputes and help them to establish a solid foundation for growth. When choosing a law firm to partner with, they should consider one that specialises in startup law, who can help them navigate through these challenges.

Tips for startups on how to mitigate these legal issues

Mitigating legal issues together with a law firm in Sri Lanka is important for the smooth operation and growth of such businesses. Here are some tips on how to address some of these issues.

1.      Choose the right business structure: Get advice from a lawyer on which business structure best suits your requirements. It is important to consider a structure that accommodates future growth potential and expansions.

2.      Protect your intellectual property: Register any intellectual property during the early stages of the business, and use NDAs created by a lawyer when dealing with employees, partners and contractors. In addition, ensure that you regularly check for IP infringements etc and take necessary action if any are found.

3.      Comply with employment laws: Understand the prevailing labour laws and create concise employment contracts, outlining terms, conditions, responsibilities and benefits in a clear manner. Make sure to develop training and workshops of workplace safety, harassment and other such issues in order to keep your employees knowledgeable on these regulations. All labour related matters should be conducted in consultation with an experienced labour lawyer.

4.      Funding and securities laws: When raising capital, it is important to work in collaboration with lawyers who specialise in securities law, and to ensure that all fundraising activities comply with set laws and regulations. Providing clear, honest and transparent information to investors is essential.

5.      Draft solid contracts and agreements: Get the assistance of a corporate lawyer to draft and review all contracts and agreements. Such documents should be clear and detailed regarding each parties’ obligations and rights. In addition, clauses for dispute resolution should also be included.

6.      Obtain necessary licenses and permits: Understand the licenses and permits required for your industry, and be updated on changes to such regulations.

7.      Ensure regulatory compliance: Keep up-to-date with industry specific regulations and compliance regulations, and develop internal policies to ensure adherence to such policies. Conduct regular compliance audits to identify and rectify potential issues.

8.      Manage tax obligations: Hiring a professional tax advisor is an important step in mitigating such issues. In addition, businesses should keep detailed records of transactions and financial records, and budget for taxes in order to ensure funding to pay the same.

9.      Prepare for litigation risks: Obtain appropriate insurance policies that will cover such incidents, including public liability, product liability etc. Have clear policies regarding dispute resolution, and enlist the help of an experienced law firm or lawyer to assist you when needed.

10.  Implement data protection and cybersecurity measures: Develop and enforce strict policies to ensure protection of personal and sensitive data, and how they should be handled. Invest in robust cybersecurity measures to protect against data breaches, and to ensure compliance with data protection laws and regulations.

General best practices for startups

·         Schedule regular reviews with a lawyer to stay ahead of potential issues and ensure compliance with changing regulations.

·         Continuously educate yourself and your team regarding legal obligations and industry best practices.

·         Keep thorough and organised documentation of all aspects of the business.

Being proactive and organised can help startups to ensure that they effectively mitigate the legal risks involved with their business, and ensure development and growth.