Startups are prone to commit mistakes, but some of them might prove too costly. There is a reason why only 20% of such businesses carry on operations post one year of starting up. Also, around half of those who go beyond one year may close down within the next five years. There are some best practices that startups should follow that safeguard the smooth running of the business. Do you know that only 20% of small companies can sustain above one year? And almost half of the rest wind up their operations within five years of starting up.
Any wrong calls on compliance and legal matters may put a business in jeopardy even before taking off. No matter how much effort you put in or do the business with the right intent, any miss and slips on the legal part attract either hefty penalties or even lawsuits.
#1 Legal Documentation
It is hard to emphasize more on having a set of standardized policies and procedures in place while starting up takes you a long way. Operational needs may well push companies to enter into any agreement, and such a deal would require policies. There are agreements like third-party NDA, T&C for websites, shareholders’ agreement, etc. All these agreements represent the concerns of the business.
The key legal documents for any startup should include;
- Co-founders Agreement
It is a must-have to spell our roles and responsibilities of founders and co-founders on paper. Consider it as a broad agreement featuring many aspects of the startup that a founder may undertake in his/her capacity.
- Non-Disclosure Agreement
Having an NDA in place is crucial to ensure founders and employees’ ideas are in alignment with the intellectual property. Typically, it should have at least the following in place;
- Owner(s) information
- Details of managing confidential information
- Defining confidential information
- Vendor Agreement
Getting a vendor agreement with everyone you deal with outside the business saves many hurdles. It typically involves evading any hidden clause(s) with a chance of triggering unpredicted price escalation or even termination of supply without prior notice.
#2 Hire Business Consultant
Plenty of businesses in India do not consider hiring a lawyer or any legal consultant after starting up. It is highly advisable to have a business counsel in place to avail some a competitive advantage and manage potential risks and opportunities. Most of the small businesses consider legal advice as something way too out of their budget, along with a perception of involving complexity. There are instances where a company expects some significant changes in the coming time, including tax applicability, change in the tax regime, or anything outside the owner’s control. It is, therefore, necessary to fortify business legality before time and stay prepared for the change.
Therefore, hiring a professional business consultant is a great way to ensure your business stays compliant. First off, it helps minimizing your operational costs involved in reinventing the wheel, as starting a department from scratch may demand way too much of resources. Also, legal service providers know precisely all the legalities involved, including IP protection like trademark registration, and even defend the existing trademark against infringement.
- How your website can be used and what the limitations that users have;
- All the warranties and disclaimers;
- Limiting the site owners’ liability which also covers its affiliates, officers, directors, and employees;
- Ways to resolve the disputes arising out of product or service use which includes methods like confidential binding arbitration and precluding class actions;
- Allowing the warranties and representations for every site user along with the site owners’ indemnification;
- Defining rights to returns and refunds for all products sold;
- User information collected over the website;
- The way how collected user information will be used;
- Mention how you ‘may share’ or ‘sell’ the collected data to third parties.
- Whether or not the site deals with the children under 13 years of age and then how;
- How the website lets users access the site using third-party services like social media portals – Twitter, Facebook, etc.;
- Spell out all the steps that the website owner would take to ensure the security and confidentiality of collected user information.
Following these three crucial compliance practices, your startup can stay assured of keeping any legal disputes at bay. The more you focus on staying compliant, the more your business gains reputation in the market and amongst the users. Try following these practices and also blend in new ones to ensure all-round business compliance.