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The six worst legal startup issues ever

When providing some startups legal advice, I came up with my own list of major legal mistakes they make when getting a project started

Number 1: To register or not to register

When we speak startup it is often something like "lemme sell some, when I grow I'll register an LLC (or any other legal entity) and get started with paying taxes".

Why the reservations? Registering is clear and relatively cheap whereas multiple services are of great help when it comes to balance sheets. We call it illegal business practices in legalese and you there's a fat chance you'll get prosecuted for these.

Advice # 1: Started a business? Make it right: register! Be it an LLC or anything else is up to you.

Number 2: Hit the offshore

Taking into account the recent preventing and countering tax base erosion and profit shifting, the number of those opting for the offshore has shrunk, but still there are some willing to move there. And most of the time they are quite certain: offshore or nothing. And if you try to dig dipper, the justification is basic: the Russian legislation doesn't apply, hole up and wait for an investor, only there can we protect our intellectual property.

In fact, much more money is spent on nothing, and I mean really-really big money, unlike the local Russian jurisdiction. It's still not clear how to use the instrument. Since when an investor comes, he is free to choose any jurisdiction. He pays, he sets the rules.

Advice # 2: Get started with a jurisdiction you are familiar with. Complex legal schemes require much work, maintenance and a much larger budget.

Number 3: No need to register intellectual property

An Internet company's major asset is its intellectual property. Be it a mobile application, a website or an invention of some kind. For reasons unknown startups hate wasting time on registering their assets and keep putting it off.

However, the putting off comes at a really high price, given the melting pot of dozens freelancers developing the project.

Meaning there's always a bane of a freelancer showing up to claim the intellectual property in use. And there paying damages would be the least of your worries, let alone abandoning the project as is.

Advice # 3: Take care of the intellectual property rights first: agreement, terms of reference, acceptance certificate, the whole thing!

Number 4: Contractor agreement? Naaah, never heard of it.

This one is a natural extension of the latter, startups could care less about agreements in general. Signing an agreement is like a useless formality made up by lawyers to extort extra money and distract from the "real stuff".

Following this approach can have various outcomes, usually not really nice ones. Disputes with contractors, lost cases, levy executions... you name it!

Not long ago there was a customer who couldn't charge the client since the product description and acceptance procedure have not been set forth in the agreement. Meaning, the client was at liberty to accept the works as they pleased, presenting new claims and requirements time every when possible.

Advice # 4: Settle all key moments before signing an agreement.

Number 5: They're gentlemen, take my word for it

Founders invest money and forces. And as a rule it's a handshake deal, startup brotherhood, right?

Unfortunately, sooner or later investors would want to leave the project and claim their share (assessing the amount independently, since nothing has been recorded) or at the very moment a dispute arises in the company regarding shares, profits and all else.

Has there been a document establishing the initial agreements, 90% of the disputes would have never been risen in the first place.

Advice # 5: Set the dispute and settlement procedure at once.

Number 6: A lawyer/accountant on my own

Sure, nothing wrong there. Right, lawyers (and accountants) differ. And, as usual, they are looking to hire a marking manager, a developer, a secretary, but not a lawyer or an accountant. They know three things here: playing football, drafting agreements and keeping books. Right.....

Advice # 6: It's not gonna happen! So, sooner, keeping in mind all of the above: legal issues should be taken seriously, neglecting them can ruin your project. Even considering the fact is a deal half done!

Author: Lyudmila Kharitonova
Source: introvert.bz


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