Since Legal Consulting Center law firm has been working for a long time in the legal services segment related to providing advice on starting a business in Ukraine, then, of course, it has many of its own developments in this segment we want to share with you.
As a rule, startupers-beginners have a very simplified understanding of what legal services they will need for a startup and what legal issues they will face in the future when opening their own technology business, which are primarily limited to the choice of the organizational and legal form of such a business ( registration of an economic company, for example, in the form of a limited liability company, or an individual as an entrepreneur), the definition of a company name and, maybe, trademark registration, as well as the use of some simplified contracts found on the Internet, to design relationships for the development of the website, or some objects of intellectual property, which constitute the main idea of a startup, and actually, that’s all.
However, such an erroneous idea of the sufficiency of legal support, limited to the range of issues, laying the foundations for the emergence of legal problems in the future.
While the startup is at the stage of elaboration of the idea itself, in particular, the product idea is conceptually under consideration, the market segment and potential demand are analyzed, and so on, that is, when there is one interested person – a start-up or a group of such people who invest exclusively their free time, perhaps, insignificant funds, then, usually, nobody thinks about the legal component of a business project; most likely, at this stage, this is not so fundamental.
But as soon as the startup stage reaches a higher organizational level and there is a need to involve any specialists, for example, to develop and create a startup product, website, investors, etc, the result is, among other things, disclosing information to third parties about the product, its features – in fact, disclosing the startup’s idea – the following questions should immediately arise before the startup.
- What issues are related to the legal component of startup projects?
- What is the legal support for startups?
- What will be the product of a startup as an object of intellectual property; is it subject to registration and in what order?
- Who will own the property rights for the start-up product being created: one startuper as an individual, or a group of such persons, or some legal entity? What is more convenient to register and what are the differences; does it somehow affect the protection of rights and how?
- How to formalize the relationship between a group of like-minded people related to the product of a startup? Jointly create a legal entity, for example, a limited liability company, or is it better to formalize such a relationship in some other way?
- How will business be organized at all? Who will sell the final product: legal entity or individual entrepreneur; what are the tax consequences, what are the options?
- Whether to register a trademark, for which product classes, and to whom?
- Who will finance the startup? Whether it’s own funds, if, yes, from what sources; if attracted, then who is the investor and from what are the sources of this investment (for example, from abroad); will there be tax consequences; how to arrange it correctly?
- How to formalize contractual relations with technical specialists in developing a startup product, in order to be able to register property rights to the resulting intellectual property?
- How to protect the product from information leakage and not allow it to be illegally used by third parties: to conclude an agreement for these purposes, then with whom (directly with the specialists involved and / or some legal entity where they are, for example, employed) and on behalf of whom (on behalf of a startuper, as a private person, or from a legal entity); and also what contract to enter into?
- How to properly arrange the contractual relationship with the technical specialists in the development of the website and what are the risks if this is not done?
- How to use software products, whose rights holders are third parties, and not to violate their rights? (Learn more about obtaining software patent)
- How business processes will be organized, how a startup product will be sold and in what way funds will be paid by end users; whether an agreement with a financial company (payment system) or a bank is necessary to receive funds from end users; whether a license agreement is required for a startup product with an end user ?
- How to protect your investments and property rights?
This is not a complete list of issues related to the legal part of a start-up project, which needs to be considered before implementation of a business idea.
Of course, legal advice for startups and the answers to all these questions are individual and depend on many subjective factors, such as: the specifics of the startup product itself and the characteristics of its sale to consumers, the number of product owners, their own startup business model, their sources, or the need to attract investors and sources of financing of such investors, the goals of owners regarding the proceeds received during the startup implementation and the planned volume, as well as the ultimate goals of the organization of such a business in general.
But in any case, without asking yourself all these questions, and without getting the opinion of professional consultants, in fact, having ignored them, you will have to return to their consideration anyway, having done a lot of work and, possibly, incurring both temporary and cash costs that may not be necessary at all, if you had enlisted previously qualified support of an IT lawyer.
In addition, without knowing in advance what kind of legal assistance to startups you need and not laying a high-quality legal “foundation” in the design of the relationship between owners / investors, developers of start-up products, during trademark registration, registration of intellectual property rights, etc, you risk, ultimately, even under the condition that the startup idea itself was correct and promising, or you fail to implement it, or moreover, create an opportunity for others individuals to use this idea and implement it independently, but without you.
Artur NONKO, Ph.D., managing partner of Legal Consulting Center
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