By Mark Adair, senior associate on the technology law team at Mason Hayes & Curran in Dublin.
If you are a start-up or emerging tech business it is important that you establish sound legal foundations from the beginning of your journey. You may be tempted to leave the legal part to the end, or to forget it all together. But there are some big legal risks that you should not overlook. Dealing with these upfront on can save you significant time, effort, and money in the long run.
Here are our top six legal issues that all start-up and emerging tech business should consider.
- Company Structure
One the first considerations for any tech business is the structure of the company. Legally, a company can take a variety of different forms, ranging from partnerships, LTDs (the new name for a limited liability company in Ireland), a DAC (a Designated Activity Company set up for a sole purpose), and companies limited by shares or guarantees.
A limited company is considered to be a separate legal entity to the individual. This means that a limited company not only protects those who are responsible for the company but it also means that the company becomes more attractive to investors. You should also seek professional advice on employing an efficient tax structure for your business.
- Agreements between founders and directors and shareholder agreements
Establishing the precise rights and responsibilities of founders and directors of your business in a written agreement can prevent costly litigation in the future. Without a written agreement the rights of the founders can become blurred with the rights of the company. Asking the courts to resolve a dispute can also be very time consuming and cause significant disruption to your operations.
Often, tech start-ups offer share options to as an incentive to retain valuable members of staff. If your business will have shareholders it is vital for the company and the shareholders to know exactly who gets what. A shareholder agreement should be put in place along with other constitutional documents of the company. A shareholder agreement can also deal with what happens when a shareholder leaves the company, as well as instances where the company wants the shares to be offered to current shareholders first before offering shares externally.
There are many ways for your business to obtain funding, such as seed funding, bank loans and investment from the founders themselves.
A company that doesn’t seek appropriate professional advice on venture capital funding can end up unintentionally signing away aspects of the company in return for a disproportionately low amount of funding. If your business prefers to opt for a loan, you should get your legal advisers to review the security documents. If a founder decides to invest directly in the company, it would be prudent to get legal and tax advice on the optimal ways to structure repayments to the founder.
- Privacy and consumer law
Data protection and privacy is hitting the headlines every day, whether it is data breaches affecting global brands or new European privacy regulations. If your business stores or processes any form of personal data, such as names, address, health data or credit card information, you need to have suitable data protection policies in place. Not doing this risks investigation by the Data Protection Commissioner and the potential of significant fines.
If are providing goods or services to European consumers your business will need to comply with the relevant EU and Irish laws on consumer protection and electronic marketing.
- Intellectual Property (IP)
You should ensure that your business either owns or has the correct licences to use your core intellectual property and software and that your IP is adequately protected. Your business will be less attractive to investors and potential buyers and may be at risk of prolonged and expensive court battles if you do not have these rights and protections in place. It is important to remember that whether your staff are classed as employees or contractors can have a significant impact on the ownership of intellectual property that they develop for you.
There are other areas of IP that you may have to attend to early on, including registering trade marks and securing social media branding and domain names.
Your staff will likely be at the heart of your business. You will have a number of employment law to them, starting from the interview process, through to employment contracts, internal working policy documents, disciplinary procedures and employee exits.
It is essential that you establish employee procedures and policies from the outset. This could prevent costly cases escalated to the Work Relations Commission. Any potential purchaser of your business will want to see in their due diligence a paper trail demonstrating your compliance with all applicable employment law legislation.
— Mark Adair (@markadairlawyer) December 9, 2016
How we can help
Legal considerations affect nearly every aspect of a start-up or emerging tech business as it scales up. Having a legal sound legal structure in place helps protect you and your business and will show potential investors that you have considered the various legal and operational issues that are often at the centre of why so many start-ups fail. A legal safety net will also ensure that your businesses can focus more time on developing what is most important to you and your customers.
Mason Hayes Curran provides a full range of start-up law services to emerging companies. We advise on business formation and structure, corporate governance, intellectual property protection, financing, investment and shareholder matters. We understand the particular needs and concerns of emerging businesses and their requirement for clear and prompt legal advice. So if you have a million dollar idea please get in touch with us today.
Mark advises both Irish and international clients on a range of complex technology matters. He has a particular focus on the areas of software, cloud computing and fintech. Mark is recognised as a thought leader in the Irish technology law sector.