The truth is, start ups have legal needs.
Nowadays, when the word “legal” is mentioned it’s often with connotations of high and unnecessary costs, especially by the founders of start ups who rightly have a focus on revenue generation and cash flow. Finances are for marketing and sales, not for legal they would say. Little did they know that getting a lawyer from the moment you start planning your business will save you both money and time in the future and will actually help with revenue generation. Let’s just take as an example, Uber, the transport app, was only fairly recently a start up business, but now its business is huge, with an estimated value of $50 billion+. However, some analysts think that valuation is very overblown and its business built on foundations of sand, because of a number of structural legal flaws. Their intellectual property portfolio was not protected from the get go with the right filings; their structuring of drivers as independent contractors has been fundamentally challenged, resulting in an an adverse ruling against this model in the UK. Disgruntled competitors are funding challenges to the way Uber is licensed (or not as the case may be) in numerous cities. The moral of the story? How much protection, additional value AND sustainability in its business model could Uber have achieved by having a good general counsel from its inception.
Not every start up will grow to Uber’s size, but we list down the top ten common needs of start ups and the value that a good all round commercial law generalist, aka general counsel, can bring.
- Business model legal, risk and compliance healthcheck. Even before you start your business, a general counsel can cast a sharp eye over the model and help finesse it because they have a foot in the legal world and a foot in the business world. They will apply what they have seen in practical operationalising and monetising new streams of business and what risks are involved. They won’t derisk it completely and nor should they, because risk does equal reward, but they will have helpful suggestions on the business model structure in a way that helps lay off some of the unnecessary or easily mitigated risks.
- Business vehicle establishment. There are multiple different business vehicles available for you to run your business through, and a general counsel can help recommend which of these vehicles suits the particular needs and goals of your start up business, including speed to market. After choosing which type of business vehicle that your start up business needs, setting up that vehicle, capitalising it and deciding who will be involved in running it as well as how this impacts your exit strategy will all be important.
- Business registration and business regulation requirements. Depending on where your business is physically located, there may be different country, state and/or city has regulation requirements. Business is generally becoming more regulated by Governments in the Asia Pacific region. General business regulation can cover areas such as employment rights, data privacy, direct or e-marketing, intellectual property, environmental protection, health and safety, among others. A good general counsel will have a working knowledge of these regulations and be able to effectively give you advice and assistance to make sure that you are fully or at the very least, substantially compliant with these different regulatory requirements.
- Industry Licensing. Aside from the country/state/city business registration requirements and the general regulation of businesses, there are also regulations particular to certain industry in the business (ie food, transportation, construction, medical, recruitment etc.). General counsel may have broad knowledge in business and legal matters, but often turning to a general counsel with experience in your business’ particular sector or industry will enable result in a variety of options and strategies to cover off industry licensing compliance risk.
- Intellectual Property Rights. More often than not, start up businesses provide fresh and new ideas, services and/or products. With the help of general counsel, you may verify whether you can protect any intellectual property rights that exist in your business, services or goods and also provide information on patents, trademarks and copyright, but also whether your business is running the risk of infringing other intellectual property rights. As well as helping with strategy, general counsel also help you to register your intellectual property in order to enhance its protection. Registrations such as trademarks used in your business in order to avoid somebody else using your business name and to minimise exposure to reputational risk.
- As employees, suppliers and customers get involved in the business, information is exchanged and transferred. To avoid confidentiality claims, a general counsel can provide you with set of rules to define your businesses confidentiality rights, limitations on information access, protections that can be sought in cases of breach of confidentiality or loss of information/data.
- It’s not unusual for your initial employees to resign and move to a competitor or start their own business. Having a set of tight employment terms containing restraints, drafted by a knowledgeable general counsel will help to protect your business from unfair competition. Eg ex-employees replicating your business model, approaching your own clients, customers and staff. Equally, if you have left a corporation to start up your own business, a general counsel can give you advice on what the current industry practices are and whether you yourself have a valid restraint and how to protect you against this being enforced by your ex-employer.
- Terms of Business. In order to protect your business from unnecessary liabilities, standard agreements entered into by the business, either on the sell side or on the buy side, should be drafted and prepared by a general counsel or at the very least, reviewed by the general counsel to identify and cover off business and legal risks.
- Business Continuity. Assuming you will have physical premises, making sure that you have security to conduct your business from those premises is paramount. The terms of a lease, sublease or even a serviced office agreement can trip your business up. A good general counsel will know the key areas in these documents that will do so and what to focus on changing or if no changes are permitted, how to lay of some of the risk. Ensuring that you have the right insurances in place to protect you is also key to minimising the impact of any “business outages” or disputes.
- Operational Legal. Once your product or service is live in the market, there are day to day legal matters which start ups will encounter including reviewing and negotiating agreements, protecting against misuse of your confidential information with non-disclosure agreements, checking key supplier terms and giving practical advice on dispute resolution.
