Tips on how to establish a Tech Startup. Legal view

You are thinking of developing a great Tech product, never seen before: a software that can only be used by a specific sector or an App that can be used by anyone, for example … to chat with your friends… and you think that this product could be bought/used by millions and millions of people. Now what?

Just to be very clear from the beginning — ideas can´t be protected as “ideas”. You have to put your idea into practice, you have to start developing your one-of-a-kind product, write the code and then you can protect it. The code of your product as well as any original graphics for example, are protected by copyright. The protection is automatic, which means that you don´t have to register it to own it. Some countries give you the option to register your right over the product with an Intellectual Property office but it´s not mandatory. However, if someone copies part of your product and you want to go against them for it, you might have to prove that you are its creator. We´ll get back to this point in a future post.

Normally, at this point, you should start thinking of finding someone interested in investing in the development of your product. Business angels or investment funds will most likely ask you to create a company and in exchange for their investment and mentoring they will get part of it.

How do you create a company? Depending on the country where the company will be established, you will need to know who are the shareholders, what participation they will have, who will be the CEO/director(s), what majorities you need in order to have a word to say in the company (for eg. if you own 10% of the share capital of the company, you won´t be able to “actively” participate in the decision taking process but if you have 51% or more, you could have an important role in your company). Even in this second case, you should check the statutes of the company (depending on the country they are called: Memorandum and Articles of Association/Constitutive Act/ Escritura de constitución/ Deed of Incorporation etc) and see if they mention special majorities such as “for decisions regarding x matter, a majority of 75% of the total share capital of the company shall be required”. If you only have 51% of the share capital of the company, in order to pass a resolution, you have to team up with other shareholders until you get to 75%. But this is not necessarily a disadvantage, as this type of majorities can force the shareholders to work together in order to find a solution for the well-being of the company. Don´t forget to also include the possibility to exclude toxic shareholders and to exit the company upon request.

Once you have established your company, there are other aspects to be considered such as:

Copyright. Keep the copyright of all the projects with the company — this is something investors are really interested in. So make sure all your employment and third party development agreements include a very clear IP assignment clause. Keep thinks very clear since the beginning and you will have one less problem to worry about when facing a Due Diligence process later on.

Trademark. Do you have a great name for your product or business? You can register it as a trademark in the countries where you wish to sell your product. The IT sector is growing fast and how do you know that in a few months a competitor won´t want to sell a similar product? Trademarks work on a first come first served basis. The first to apply gets the trademark. When is the best time to apply for the registration of the trademark? As soon as you are sure of the name you want to use and a trademark search confirms that the trademark is available. Before applying for its registration, don´t share it with too many people, you might have the unpleasant surprise that someone else has applied for its registration just a few days before you did.

Domain names. We live in a highly digitalized world, where the Internet plays a very important role in our lives, you definitely want to register some really relevant domain names containing your product´s/business´s name.

Confidentiality. NDAs are confidentiality agreements that you should always sign with your partners/potential collaborators when disclosing important (confidential) information regarding your product and/or your company.

Other issues may appear on the road to success but the most important thing is to take that first step, to start working on making your dreams come true.