Six legal questions every start-up needs to think about
A digital media startup, like any new business, needs to cover its bases and be smart when it comes to the law. We look at why this is so important and what legal groundwork you need to put in place so that your business can focus on what it does best.
Thomas Reisenberger is a legal adviser at Legalese, a South African creative legal agency specialising in startups and the creative and tech fields. While they do not litigate cases in court like a traditional law firm, Legalese focuses on making legal services understandable and accessible for creatives, such as by using reasonable fixed price billing. Reisenberger recently spoke to jamlab accelerator teams about common pitfalls in the process and what legal structures to put into place.
It may be tempting to think you can avoid using a lawyer as a startup, or only bring one in once you encounter problems. Reisenberger says, “one of the misnomers and misunderstandings in the industry is that we need to save up so much money, wait so long, and find the right contacts until we can start the legal process.”
This approach may be well-intentioned but can cause significant problems later on. Reisenberger gives the example of a digital startup that was about to launch their product when they sought legal advice and realised that their business model had a significant legal requirement that they had not planned for and were not able to easily fulfill.
However, thinking about the law early on in the process does not necessarily make it more expensive or inaccessible for smaller startups. Reisenberger explains that while “you must work within the recognised legal frameworks,” such as drawing up contracts and shareholders’ agreements, startups can do a lot of the initial decision making themselves.
In fact, this can be very important, because it means that you are informed and in control of all legal aspects of your business. “What happens is that a lot of companies defer the knowledge that the company itself is supposed to know, to other people, and when something goes wrong, they don’t know what to do,” says Reisenberger. For instance, if you do not have the right documents in place, you will have to rely heavily on lawyers when there are internal disputes or problems with service providers.
If your startup does not have a large initial capital, Reisenberger recommends turning to incubators and professional associations for help or seeking out free initial consultations and sources of information. Once you have been able to understand and decide the direction your company will need to take, you should then pay for consultations to make sure your structures are legally sound. This will hopefully avoid legal problems in the future.
While every startup will have different legal requirements, some considerations are the same. Reisenberger lists six key areas that answer the question of ‘how does my entity engage with the rest of the world and itself?”.
Firstly, startups need to protect their intellectual property, through the use of copyrights, trademarks, patents and more. Reisenberger explains that there are laws, such as the copyright act, governing tangible products in real life, such as a printed newspaper. You should match up the various parts of your business to the laws, asking “‘where does it fit and accordingly what are my rights?” However, he warns that this functions very differently online and there needs to be an intellectual property policy on your website.
Another important aspect is choosing the correct basic business structure, such as a Sole Proprietor, NPO or (Pty) Ltd., and understanding the requirements of each. You also need to understand the laws concerning tax and compliance that apply to you.
Fourthly, all of your startup’s professional relationships need to be formalised in some way, either orally or ideally in a written contract. Reisenberger splits this into four categories, namely customers, internal staff and shareholders, service providers and authorities. He recommends mapping this out in detail for your specific business, so that “if anything goes wrong, you go back to the documents.”
You also need to consider personal information and privacy, which in South Africa is primarily influenced by the Protection of Personal Information Act (POPI) among others. Lastly, depending on your business, there may be international or foreign law that applies to you, especially if you may plan to do business across borders.
Understanding all of the legal aspects of your company may seem daunting, but if set up early and properly, this will be the foundation of your company running smoothly and avoiding conflicts.