Starting a new business is both exciting and challenging. It also comes with its fair share of legal minefields. As a startup founder, it’s important to understand and minimise legal risk, so your precious seed funding is not eroded by things like unnecessary tax liabilities and penalties, redundancy payments or legal battles.
Let’s go through some of the key legal risks that startup founders should be aware of, and our tips on how to minimise them, so you can spend your capital and attention on turbocharging your growth!
Ensure Proper Legal Documentation is in Place
One of the most common legal exposures for startup founders is failing to put in place proper legal documentation. This includes things like failing to properly document ownership of intellectual property, not having a clear and comprehensive shareholders agreement, or not having written contracts in place with employees and contractors. Proper documentation and good record keeping not only helps to protect your business, but it also makes it easier to raise capital, secure loans, and protect your intellectual property.
Protect Your IP and Reduce IP Infringement Risks
Another legal risk for startup founders is intellectual property (IP) infringement . This can happen if your startup is using technology, trademarks or copyrighted materials owned by someone else, without the necessary licences or permissions. This could include software, marketing materials, ideas and more. To reduce your risk, it's important to conduct a thorough IP audit.
It's also important that your own IP is properly documented, and protected via trademark and patent registration where appropriate. Getting this put in place early on can avoid headaches down the track.
Know Employment and Contractor Law Requirements
Employment law is complex and constantly changing, and startup founders need to understand their legal obligations in respect of both employees and contractors. This includes matters like providing a safe working environment, free from sexual harassment and bullying, complying with employment laws and regulations, paying the correct award rates, and satisfying other minimum employment standards. Failure to meet these obligations can lead to legal claims and unnecessary costs and/or penalties. To minimise this risk, it's important to have a clear and comprehensive employment or contractor agreement in place and to stay informed about the laws and regulations that apply to your business.
Protect Your Data and Customer Privacy
Data protection and privacy are big issues for businesses of all sizes, not just startups (looking at you, Optus and Medibank). But unlike big corporations, SMEs often lack the resources and internal know-how required to keep their business and customers' data secure.
The unfortunate reality is that a cyber attack or data leak can destroy a startup (or any business, for that matter). To minimise risk, have a clear data protection policy in place that complies with the relevant laws and ensure that all employees are aware of and follow the policy. Employees should also receive cyber security training to prevent phishing and reduce risks of privacy breaches. Finally, if something does go wrong, having cyber insurances in place can protect your business from financial and legal risks.
Understand Your Tax Obligations
Startup founders need to be aware of their tax obligations because non-compliance with tax laws can lead to penalties and interest. To minimise this risk, it's important to work with a tax advisors to ensure that your start-up is in compliance with its tax obligations.
But there’s more to tax than compliance. Tax planning can help minimise the tax payable and avoid any nasty surprises at lodgement. Such planning involves forecasting your expected results, analysing opportunities to reduce tax liabilities,restructuring to make your business more tax efficient, and then executing a plan to keep your tax liabilities to a minimum.
Seek Professional Advice on Startup Best Practice
Starting a business comes with its fair share of legal risk, but by being aware of them and taking steps to minimise them, startup founders can help protect their business and ensure its success. When you find yourself out of your depth or lacking resources to tackle issues facing your business, seek legal advice from startup lawyers and experts who understand startups, like BlueRock! Get in touch with our advisors today.
