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Why you badly need a legal opinion when launching your startup

by Tobechukwu Ndunagu

A foreign blockchain-powered and crypto-based startup contacted us recently. The startup founders had developed an app that could disrupt the global remittance market. It was so sure of the ability of its product to achieve this. But something was unclear. The US-based startup was unsure of the legal and regulatory environment in Nigeria. It badly needed our legal opinion on FinTech regulation in Nigeria, particularly in relation to their app. In a few days’ time, they got the legal opinion they needed. The road was clearer—much more clearer. Quickly, the startup returned to the lab to redesign some features of the app so it does not end up being tied in a regulatory knot after launch. 

Before you launch that startup and risk sinking in troubled waters, would you rather not get a legal opinion? 

Launching and running a startup can be exciting, engaging, but extremely demanding. It will not only make demands on your often limited resources but also your ability to derisk your startup from the outset. While investing man, materials, and money to launch and run your startup—particularly when focusing on having that minimum viable product (MVP) ready and validating the MVP or focusing on building the traction you need before you seek funding to scale—it is typical of most startup founders to relegate legal considerations to the bottom of their priority list. While this is may be understandable considering that launching and running a startup can be a lot to handle, you should also have legal considerations in mind. Legal issues could easily make or mar your startup. And this is where having  a legal opinion for your startup comes in. 

As you work hard to get your startup or business off the ground and seek success in your market, it is equally important to realize that legal factors need to be considered too. Though often overlooked or considered something that you could do on your own—Google is your friend after all—getting a proper legal opinion before launching your startup is essential. Understanding the legal and regulatory issues concerning your startup product or service in your target market, knowing the peculiar risks involved in data privacy of your users in your industry, or even protecting and monetizing your intellectual property (IP) are not things you should go about on your own or ignore otherwise they usually bite back at you sooner or later. So getting that legal opinion upfront can save your startup a lot of mistakes. It will check against avoidable business and legal risks. It will also save you limited resources such as money and time. With a well-considered legal opinion on critical aspects of your startup, your business will get the help it needs to have a strong legal foundation and be significantly derisked. This makes you, your business partners, investors, and your customers happy. And a happy business is a profitable business. 

In this piece which is part of our What Startups Badly Need Series, you will get to understand and appreciate vital legal considerations, helping you see why you badly need a legal opinion on your startup. And this largely applies whether you are about to launch your startup or you already launched your startup. This is because while it may be too late to fix certain issues after launch, it’s never too late to know what may have been broken, and how to minimize their imminent effect on your startup. Either way, a legal opinion on your startup essentially secures your future.

  • Derisking the Startup by Having  Clarity with Co-Founders

Whether your startup involves a single co-founder or multiple co-founders, it is important to make a clear deal, contractually, to avoid future conflicts. 

Getting legal opinion can help your startup fine tune the legal basics, including setting out roles and responsibilities of founders, remuneration, percentage of ownership in the business, cash or assets invested or contributed by the founders, and much more. Having a legal opinion on this sensitive aspect of your startup can help provide a long-term and strategic plan for dealing with contentious issues that can arise. And contentious issues almost always arise, even—and sometimes especially—if the co-founder is a relation, spouse, or other special person. 

So the question is not whether contentious issues will arise, but whether you have adequately prepared your startup ahead of the contentions. This ensures that founders’ and co-founders’ conflicting interests or goals do not hurt the startup. You may read up our discussion last week about why startups badly need a founders’ agreement. A lot of considerations go into this, so much that a legal opinion may best address the seen an unforeseen risks. 

  • Intellectual Property Protection

If your startup is a new or inventive product or service and generally unmatched by pre-existing products or services, you will need expert advice on your IP protection. Whether the originality of the source codes for your software (copyright), the distinctiveness of your brand name (trademark), the newness and inventiveness of the technology (patent), or the newness and uniqueness of the patterns or shape of your product (industrial designs), getting intellectual property protection is crucial to protecting your business. Ignoring this can allow third parties to infringe on your IP with no legal repercussions. 

For the interest of your startup—especially founders and investors—ensuring that your startup has an IP strategy is vital.  For this, you should get a lawyer or law firm that specializes in IP thus bringing both expertise and experience into the game to give your startup a competitive edge. Intellectual property rights include copyright, industrial design, patent, trademarks or service marks, trade secrets, and less known IP rights such as geographical indications, database rights, traditional knowledge, etc. IP also covers antitrust and competition laws, enabling you protect your startup from unfair competition.  

IP protection can either make or break your startup, thus it is one major legal issue that should be addressed when launching your startup or at the earliest possible time.

  • Establishing a Business Structure Suitable for Successful Running of the Startup

Starting a business means you need to decide what type of business you want to run. Is it a sole proprietorship or partnership (business name)? Is it a private limited liability company (LTD), and is it limited by shares of by guarantee (GTE)?  Is it a nongovernmental organization or nonprofit organization (incorporated trustees)? Should it be a joint venture? 

These questions are best decided based on the nature of your business or enterprise, your goals, your industry, the parties involved, and of course your needs. Finding answers may even require you to consider related matters such as share capital structure, one of the most important aspects of structuring for startups since a good number of startups are private companies limited by shares.  Again and again, share ownership, control, transfer, and other related issues continue to destroy startups. It doesn’t have to be so.

Getting a legal opinion particularly from a startup lawyer or law firm can help you understand the ins and outs of each business structure and align your goals and needs with it. Besides, getting the legal form under which business structure to operate under can save you from unnecessary higher taxes and significant liabilities. It’s best to trust your legal counsel in guiding you through these important and necessary steps as a startup. 

If you get the business structure of your startup wrong, the consequences can be quite costly. Startups should seek legal opinion early.

  • Ensuring Regulatory Compliance

Depending on the nature of your startup, you might be subject to a number of regulations that affect your business. It is important to understand the regulatory environment that form the backdrop to your startup. The nature and level of regulatory compliance for one startup may differ from that of another. 

This is why you need a legal opinion tailored to your startup. Getting this legal opinion will enable you know the legal and regulatory frameworks that apply to your startup, from specific industry regulations and directives to general laws and regulations, including competition  law, consumer protection laws, cybersecurity laws, data privacy laws, environmental laws, finance laws, labor or industrial laws, local contents laws, investment laws, tax laws, technology-transfer laws, and others. 

Failing, neglecting, or refusing to comply with the provisions of  laws and regulations, startups stand the risk of being penalized by regulators. This is bad for business. And this is why startups need to be constantly aware of their business and regulatory environment by getting reliable legal opinion on regulatory compliance. It will help you understand and appreciate statutory and regulatory obligations and liabilities. It will help you be aware of the risks. It will also help you guard your investments, knowing what you need to have in place at what particular stage of your business growth. All of these will put you in a proper or advantaged position to design products or develop services that remain regulation-optimized, thus significantly minimizing the burden in launching and running your startup. 

Getting a legal opinion that includes regulatory compliance for your startup will effectively help you avoid penalties for noncompliance or regulatory hurdles that may negatively impact on your revenue projections or ability to scale. 

  • Tax Issues

Establishing your business structure can help determine what your taxes will look like as a business, but getting an opinion on important tax issues can save your startup from unnecessary complications, costs, and stress. 

Taxes are inevitable and a necessary part of operating a business. Perhaps understandably, tax is often seen as a necessary evil by many startups. This is particularly the case in business environments where there is a great disconnect between taxation, innovation, and taxpayer’s benefits. But startups have no choice, do they? Tax evasion is a crime. So whether it pays to pay your tax or not, your startup would eventually pay for it one way or the other. 

Getting a legal opinion on tax compliance can help you understand some of the complex issues that often come with tax liabilities. It will help you understand your tax obligations, including any tax-avoidance steps you could implement to legally reduce your tax burden. (This may include applicable tax holidays in your market or industry.) It will help you understand the importance of record-keeping and statutory deductions. It will also keep you on your feet regarding numbers. Numbers mean everything in business. It’s no exception for startups. By getting a legal opinion on tax compliance for your startup, your startup will be able to arrange or rearrange its business not only to run safely but also to run profitably. Recently, Nigeria’s taxation policies underwent a drastic change with the Finance Act 2019. An Act that has significant implications for startups which eventually commenced 1 February 2020.

Delay is dangerous 

When starting a business, you don’t want to cut corners. 

Ensuring that everything starts and runs smoothly prevents you going back and fixing things that could have been proactively dealt with. There are many trial and errors that startups deal with, but mitigating legal issues can cost a lot (money, time, etc.). 

Your startup will benefit from a timely intervention.

Therefore, it is well worth it to invest in a legal opinion to ensure that you are handling sensitive issues properly, and abiding with the law in every respect. Consulting  the legal counsel you need can save you money in the long run, proving to be quite a smart investment for your startup. 

Don’t break things; break through. 

Now you know why your startup badly needs a legal opinion before launch, or even after launching one. Act NOW.

‘Why you badly need a legal opinion before launching your startup’ is part of Infusion Lawyers’ ‘What Startups Badly Need Series’. Subscribe to our blog so you never miss a post in this series.

Our Three Square Meal Startup Bundle comes with a legal opinion for startups, amongst other legal services. It is a three-pack bundle specially prepared and packaged for startups that badly need accessible, affordable, and flexible legal solutions. To sign-up for a bundle or select one or more packs for your startup, simply complete this online form.

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