In today's article, we'll introduce you to the concept of startups, which can face significant business and legal challenges when launched. Startups are entrepreneurial initiatives with high growth and innovation potential that contribute to the development of economic sectors and can be described as a project in the business plan stage.
The presence of a business plan is important in the formation of a new company, which should meet the three basic characteristics of innovativeness, potential scalability and potential returns. We dare to say that innovativeness is the fundamental characteristic that distinguishes an ordinary company from a start-up.
With innovative ideas, opportunities open up to build something new and desirable. If a business is to be successful, it's not enough to just have ideas. You need to learn how to "sell" your business not only to clients, but also to potential investors. An important decision you need to make as founders is what legal form you will run your business in. Startups don't have a directly defined legal form, you may find them as an LLC or an a.s. There is a legal form that makes it easier for startups and that is a simple stock corporation (j.s.a). The main feature of the j.s.a. is its directness to attract investors and regulate their relationship with the founders. The advantages of a simple company are the freedom to determine the rights and obligations of your company. Unlike an LLC, you don't have to have a supervisory board, you can set your own reasons for dissolving the company, and the list of shareholders is publicly available.
By choosing the wrong legal form , founders often take the wrong steps at the very beginning of the business. Many times companies start their business without consulting lawyers or hire inexperienced lawyers in order to save on expenses. When selecting a lawyer or law firm, it is advisable to reach out to lawyers who have expertise in the following areas of law and will be competent in dealing with potential problems:
i. company law,
ii. labour law,
iii. intellectual property right,
iv. real estate law,
v. tax law, etc.
If you have decided to set up a simple company for shares, you can do so as one person or several persons, with no distinction between a legal entity and an individual. You need a memorandum of incorporation in the form of a notarial deed and the drafted articles of association of the company. A trade license is required according to the subject of the activity you want to engage in and then you can apply for registration of the company in the commercial register. In the case of a simple company for shares, it is necessary to obtain registration in the register and to have a securities issue identification code (ISIN), which is assigned by the Central Securities Depository on the basis of an application received.
Before the actual registration in the commercial register, it is necessary to choose a suitable company name. At this step, you need to increase your attention and do a thorough check to ensure that the name you choose is actually available for use. Improper name selection risks trademark infringement or a domain name problem. Do not limit your choice of company name to the product or activity itself. Too narrow a name can cause problems as the company grows and expands. Make sure the name is unique and easy to remember. Try consulting with an intellectual property attorney to conduct a professional trademark search.
In the case of a company set up by several founders, it is important to agree on the details of your joint business. Failure to do so may cause significant legal problems in the future. Your Memorandum of Incorporation or Shareholders' Agreement should address a few of the most essential key terms of the agreement:
i. how is the capital distributed among the founders?
ii. what are the roles and responsibilities of the founders?
iii. if one founder leaves, does the company or the other founder have the right to buy that founder's shares? At what price?
iv. what salaries are founders entitled to?
v. what is the purpose and vision of the business?
These are just a fraction of the questions that are important to answer before starting a business.
Protecting intellectual property is an important part of society. Startups often lose intellectual property rights by neglecting to protect their ideas and inventions. Many marketers think that patent protection is the only way to protect themselves. There are many ways to protect intellectual property starting with the patent itself through copyrights, trademarks, service marks, confidentiality agreements, non-disclosure agreements, contractual terms and privacy policies, etc. Intellectual property is subject to legal protection and, if used in an unauthorised manner, the right holder may seek to protect it. The claims and means of legal protection are laid down in specific laws (copyright, patent law, trademark law, etc.) as well as in general legislation.
In the early days of business, you need a knowledgeable business lawyer to help you:
i. draw up contracts and statutes with all founders,
ii. with the preparation of key agreements for the enterprise,
iii. negotiate terms with potential investors,
iv. protection of ideas and inventions, etc.
Funding
Getting standard funding from banks is difficult for startups, but usually impossible, so startups often turn to family and friends and then to other smaller investors - angel investors.
In addition to guarantors, the Slovak Guarantee and Development Bank and the Slovak Business Agency also offer an interesting financing option for start-ups in Slovakia in the form of micro-loans under favourable conditions.
In conclusion, when starting a business, the ability to communicate effectively and professionally can be critical to attracting customers, inspiring employees and finding investors. Choosing the right communication platform and good legal counsel will keep your business on its toes and you won't miss out on great opportunities.
Our services can be found under "Practice Areas" Start-up and Venture Capital".
