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“Google is great, but a lawyer is always better”

One of our neighbourhood friends was fascinated by drones. He was an engineering drop out and wanted to start a business related to drones and related unmanned aerial vehicles. All of his friends loved his idea and encouraged him to go ahead with his startup idea. However, before he went ahead with this idea, he was prudent enough to consult a lawyer. He thought it was the right thing to do to ensure that his business does not fail. The lawyer explained that he could not do this business because the Director General of Civil Aviation via public notice dated 7th October, 2014 imposed a blanket ban on the use of civil drones till further guidelines were notified.

The notion that a startup does not need a lawyer is misconceived. Even though you might feel that working with a lawyer is confusing and complicated, the truth remains that startups do needs lawyers. The rationale behind this is simple - A lawyer solves problems. You must have heard about Competition Commission of India ordering investigation into Ola’s pricing strategies or Uber battling with the rape case. Now, imagine what would happen to these companies if they did not have a lawyer on their side guiding their actions and planning their strategies.

A lawyer might not do the work of an engineer but has his/her own worth that can’t be overlooked. He/she is an essential member of the startup family without whom you risk exposing your startup to all kinds of unnecessary legal hassles.

You must make sure you hire a lawyer right at the inception of your startup venture instead of when you already face some legal trouble. This is one matter where the expression, ‘prevention is better than cure’ rings absolutely true.

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Here's a silicon valley startup founder giving some essential legal tips for tech startups.

Why do startups need lawyers?

Given below are a few points highlighting the importance of hiring a startup lawyer to guide you at every step of your venture:

Incorporation

The incorporation of your business is the process of laying the very base on which your whole venture will function. You can’t afford to slacken in this crucial step. The registration of your company is a legal procedure and is best to be done under the supervision of an adept corporate lawyer. It includes a lot of legal paperwork which a lay person can’t be taken to understand.

Further, running a business without forming a legal entity with the state would make you as the founder liable for any mishaps on its part. You need to make sure you establish limited liability with the help of your lawyer to avoid having to personally bear the misfortunes of your company.

You can read more about the dynamics of limited liability and a one-person company here.

Government policies

The government lays down trade restriction policies from time to time. As a common person you can’t be expected to know them, but as a business owners are expected to abide by them. You need a lawyer to guide you on the policies and restrictions of the government so that your venture is not in violation of any of them.

Further, the taxes and liabilities your venture would be liable to also fall under this category and can be settled only with the useful insight of a good corporate lawyer. The new exemptive policies under ‘Startup India’ can be used by startups for their benefit. A lawyer will help you understand better how you can avail these benefits.

You can read more about ‘Startup India’ movement of the government here.

VC and funding agreements

Getting a VC or an angel investor to agree to fund your idea is one of the main startup goals. But there are a lot of legalities and agreements to be taken care of this extremely important step. Failure to do so properly with proper legal guidance might result into you losing your venture at a later stage.

Term sheet formation, due diligence, investor agreements lay the foundation of the relationship between the founder and the investor. Make sure all these procedures take place under able legal guidance.

You can know more about the fundamentals of the legal agreement of term sheet here.

You can also enrich your knowledge of the due diligence procedure and how you as a startup can survive it successfully here.

Co-founder agreements

You might have started your venture with your best friend and might not see the need to get into the legalities of co-founding. This is foolhardy of you as dissensions and disagreements might present themselves later on. At such times, things are bound to get messy if you don’t have a clear, compact co-founders agreement to guide the inevitable split.

Surely, you must be familiar with the story of the co-founder dispute behind your favourite social networking site Facebook. Similar was the case with Snapchat. To make sure you don’t follow suit of these corporate giants, draft your co-founder agreement with the help of a capable lawyer today.

Lease

Since you are running a business venture, you are bound to have an operating space. Now, if you are co-habiting in your newbie days, it’s okay, but if you decide to have a proper commercial office space, you will need to look into the legalities of this too. A clear and compact agreement on the lease is a must to avoid unnecessary hassles later.

Hiring

You might start off as a small team of a few members, but as your business grows you will need to hire new employees. At such times you need to make sure you have given due consideration to drafting proper employment agreements between you and your employees.

“The secret to successful hiring is this: look for the people who want to change the world.” –Marc Benioff, Salesforce CEO

Further, in order to keep your idea protected and safe, you must make sure that your employees agree to keep your company secrets safe by making them sign non-disclosure agreements (NDAs) drafted by able lawyers.

Trademarks, copyrights and IPR

No amount of protection seems enough in the startup world. The news is full of disputes ranging from small to fatally big between startups over trademark, copyright and IPR infringement. In order to make sure you don’t risk losing your venture to these petty disputes, filing trademarks, copyrights and IPRs is extremely crucial. Patents are another field you need to focus on securing.

In order to make sure you don’t get into disputes like the one between Ola and Uber and OYO rooms and ZO rooms, you must have proper trademark, copyright and IPR registration. An able IP lawyer will guide you through the process and make sure there are no glitches that might result in the loss of your brand later.

You can read the whole story behind the Ola-Uber dispute here.

Website policies

The very next step after setting up a venture is setting up a website for your startup. But, there are some legalities that go into this too.

Privacy policy and Terms of use are the main policies in relation to website usage. They lay down the promises you make in relation to using sensitive user information and the way of their consequent use of your services. These are crucial policies and must be drafted with the help of able lawyers of the correct field.

You can read more about the importance of your website privacy policy here.

Contracts

Further down the line, you are sure to get into corporate relationships with other companies. These are tricky relations and need to be secured with proper contracts laying down in clear words the terms of such a relationship.

In cases of mergers and acquisitions, make sure you have a lawyer at hand drafting all the terms of the agreement as otherwise important details can be overlooked which might prove to be troublesome later.

Such contracts must always be drafted and signed under the supervision of trusted lawyers.

Points to keep in mind while hiring a lawyer

Now that you’re convinced you need a lawyer for your startup, you might be wondering how to go about hiring one. This can be a rather taxing and dreaded process. Here are a few points to keep in mind to hire perfectly according to your legal requirements and to properly safeguard your venture:

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• Pick a lawyer from a trusted law firm. This will ensure good long-term relations and will bind them to your startup preventing them from leaving anytime they please.
• Do a due diligence process on them. Make sure they do not indulge in any immoral practices and are experienced enough to handle your legal matters adeptly.
• Hire lawyers according to your niche requirements. There are many types of lawyers available for hire. You must make sure you hire the one with the right skill-set and expertise in the right area.
• Price negotiation is crucial. Most lawyers charge exorbitant rates and you need to be wary of them. Most lawyers prefer to charge hourly instead of based on the quantity of work. You must make sure you negotiate these terms properly so that you don’t burn a hole in your pocket.
• Make sure the lawyer knows how to do his/her job. You can’t expect a newbie to tackle seasoned venture capitalists for you. Make sure the lawyer is one of experience and skill.

You can read more about what goes into hiring a lawyer for your startup here.

This often ignored aspect of startup venture is actually a very important one and must be looked into with just as much caution. Hiring a proper, skilled and relevant lawyer for helping and guiding you at every step of your venture will go a long way in protecting it in the long run.

If you have any queries related to the legalities of startups, feel free to ask us here at Lawyered.