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Legal Risks Startup Needs to Know

Legal Risks Startup Needs to Know

When implementing a business idea, entrepreneurs often focus on the market and sales. But for startup to take firm steps, limit risks, and be ready ability to raise investment capital, understanding the law is essential.

Timely implementation of the project for a startup

Timely implementation of the project for a startup

There are a lot of entrepreneurs, especially in the technology sector, starting by “doing business” with associates without setting up a business. Only the founders need to pool money and effort to implement the project, when investors pour capital, they will begin to pay attention to the formation of a legal entity.

From a legal perspective, the agreements of the founders at this time are civil and are often sketchy, so when there are conflicts related to capital contribution, capital use, property ownership, distribution, etc. benefit sharing… will have no basis for settlement.
The founders should be clear from the beginning about the terms of cooperation, and the method of doing business with each other so that they can be resolved when the company has problems.
Freelance investors typically invest when a company is in its infancy. At that time, they do not care about how to set up a business but only paid attention to whether the project had a standard model, a good team, and clear “rules of the game”. If the business has all the above factors, the opportunity to approach investors is quite high.

Necessary approvals

Young business owners often face a lot of business concerns, so legal and administrative matters are not a priority. Only when partners and customers have requested, do businesses rush to implement, leading to sometimes lost business opportunities.
In business, it is necessary to prepare documents related to the industry, capital, and meeting one or more business conditions. For some businesses, specialized licenses (sublicenses) are required.

Infringement of intellectual property rights

Unique and different product and service ideas will reach the market quickly, and the protection of intellectual property rights for those products and services should begin immediately after project implementation or immediately after the project when the business is established.
In Vietnam, violations of intellectual property, counterfeit goods, and imitation goods are a headache for businesses. The registration for protection of intellectual property rights not only ensures the exclusive right to use their assets but also serves as a basis for making complaints and lawsuits when necessary.
Franchise business models, chain development, or investment attraction need to pay more attention to this issue. Depending on the type of product or service, start-up entrepreneurs should pay attention to the protection of copyrights, trademarks, patents, utility solutions…

The conflict between owners of startup

Disputes related to conflicts between shareholders and owners rarely occur at the time of start-up, but often arise when the project is stable and brings high revenue. Still, the parties do not control the problems immediately. from the beginning.
To avoid this situation, founding members need to have clear shareholder agreements or membership agreements as soon as they are established and included in the company’s charter.
In some cases, the content of the agreement is not approved by the competent authority in the Charter, or the agreement is confidential or sensitive, etc., the parties need to flexibly include it in resolutions, and internal regulations of the company, as long as it is not contrary to the law and social ethics.

Choosing the wrong company model for startup

Choosing the wrong company model for startup

Choosing a company model is one of the primary factors in establishing specific legal regulations accompanying each model. In particular, important legal issues to note include the regime of responsibility for asset management, capital, organizational structure, and distribution of benefits in the company.
Startups often choose the joint stock company model because they think it is easy to raise capital when there is an opportunity. But, with start-ups, this model has many limitations compared to a limited liability company.
In the form of shares, after 3 years of establishment, the founding shareholders were entitled to transfer shares, but at that time, the company was not stable in terms of business and organization but changed its “leader”. will affect the business. As for the limited liability model, the business will be stable and can change its business type accordingly as the company has grown.

Contract and transaction disputes

When entering into a contract, most young business owners often pay attention to commercial terms (price, payment, and goods) without regard to legal terms such as commitments, rights, and obligations. obligations of the parties, sanctions, plans for handling when problems arise…
Therefore, when disputes arise, startups often suffer losses. The best way is to ask an expert to draft sample contracts for use in negotiations, signing with partners, or in the case of using a proposed agreement from a partner, you should also know the points to note.

You can read the previous article here: 4 Low Capital Startup Models

Comply with tax and accounting regulations

Tax obligations are based on three principles: accuracy, completeness, and timeliness. If the business does not establish an enterprise, it is necessary to comply with the payment of personal income tax.
When setting up a business, it is necessary to pay attention to the initial tax declaration and consider the declaration and payment of taxes depending on the business activities. There are three basic types of taxes: license tax, value-added tax, and corporate income tax.
In addition, related to production activities, specific products, or business processes of enterprises, there are special consumption taxes, environmental protection taxes, import and export taxes, etc. The late payment, late payment. Due to deadlines, incorrect declaration or under-declaration is always a problem that leads to damage to businesses if they do not know how to handle it or handle it late.

Mobilizing investment capital startup

One of the fastest ways to develop resources is to receive investment capital from organizations and individuals through mobilization.
Freelance investors and investment funds are often interested in the project’s potential, the team’s commitment, and the factors that make up the project’s success. However, the issue of legal records and compliance with legal regulations is also something to consider if you want successful transactions.
In short, if start-up entrepreneurs try to “run” sales without understanding the laws, basic regulations, and potential risks in the initial stage, the consequences will arise. basis.
Business owners should allocate resources to understanding the law and keeping abreast of legal changes in the business. They also need to be consulted by an experienced lawyer at the very beginning of the business idea.
Except for the case of choosing a seasonal and “horizontal” business model, for those who start a business to get rich sustainably, paying attention to legal risk management and compliance is a must.

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