The information in this article is based on my personal experience and research. I’m a Video Producer with a BSc in Computer Science. I’m not a lawyer or a legal expert, so please consult with a professional if you have any doubt or legal questions. None of the information contained here should be taken as legal advice. So, let’s get started.
In this article, I want to talk about a startup in general, not for a specific country or group (but in some cases, I will refer to the US), such as tech startup, healthy startup, or banking startup. There are so many of them and every country has different ways to rule them.
So, what is startup law? Nowadays, there are attempts at the points most demanded by those who want to enter, grow and develop in the business world. As it is known, entrepreneurship is among the most needed details of the developing world and it is of utmost importance to mention its name. Startup law is also preferred for the protection of the project at this stage. Our ideas, which are designed for rapid growth and need-fixing, are the subject of startup law.
Startup law is a branch of law that deals with the development, characteristics, and problems of the enterprise idea in the course of becoming a commercial gain or company and determines these rules and frameworks. The aim of the initiative is to protect the project against stealing, copying and putting the law on the ground. It is a specific (Sui generis) branch of law. Closely related to various law fields, including Commercial Law, Law of Obligations, Intellectual Property Law, and Competition Law. Although it is related to more than one law, it is still a development of law by itself.
As in every legal process, startup law also has certain stages and implementation periods. The reason for this is to determine the legal process within the startup project, to choose legal methods, and to protect the contract, company and investment stages. In the first stage of the startup project, since the emergence of the idea takes place, the project idea is aimed to be protected legally. Otherwise, problems such as stealing and copying of the idea may occur, but if entrepreneurship law is initiated, it is not legally possible to steal the idea. In the first phase of startup law, patents, brands, models, and ideas are registered and the copyright is determined. Establishing the basis of the project in this way is of utmost importance for the future of the project to be successful. In the second stage, a contract is signed for the people who have an impact on the project, especially the shareholders. During this contract, startup law is activated in order to protect the rights of the project and to avoid any legal problems of the partners. Share agreements, confidentiality agreements, shareholders and pre-protocol agreements are securely protected.
And yes, until you are legally registered, you cannot launch and make a transaction. You must finish the full registering process first. Just because you can do it doesn’t make it legal. Just because a law is not enforced does not mean the transaction is OK under the law. If I drive without giving a signal but don’t get a ticket, does it mean it’s legal? The reality is, a tremendous number of unregistered startups receive fines.
Racing money for startups is also very important. If you do find yourself with a potential investor who is eager to close while you are going through your accelerator program, there are financing documents called SAFE (Simple Agreement for Future Equity) that may mitigate some of the time it takes to close around.
SAFE documents were invented by Y Combinator, which is known as one of the best accelerators. It’s also the original. Y Combinator wanted to reduce the friction and transaction costs for a startup by taking quick seed investments, either during their program or immediately after, and came up with the SAFE documents.
SAFE documents attempt to be fair to both sides with standard terms. There are a few minor negotiation points, but it’s not as time-consuming as trying to figure out the investment structure and terms.
Also, I must mention that a good investor will spread their investments to numerous companies since they know that only a small percentage of startups will make it. It’s common to see investors invest money in twenty startups, excepting about fifteen of those companies to fail, three to break even, and the remaining two to provide large returns that more than makeup for their lost investments.
I always say this, and I’ll hammer this point again and again— the startup world is small. Don’t burn bridges. Earn respect. Do good work. If you do this, then, hopefully, you’ll find yourself at the initial seed round, ready to raise some serious capital to grow your company.
According to the interests of the parties to establish a company with a separate legal personality, the company is intended to establish a full protocol. It is important that the parties choose the type of company that best suits their needs because the obligations and responsibilities of the parties will be changed according to the type of company being established. In order to minimize the risks arising from third parties and to minimize the conflicts in their internal relations, the parties are advised to make a shareholder agreement. With such contracts, the responsibilities of the parties in internal relations share the transfer procedure, decision-making mechanism, and confidentiality, so a non-compete obligation should be regulated, and a number of deterrent measures should be taken in order to protect mutual rights in case of non-compliance with the contract.