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Legal Issues for Tech Start-ups

Monday, 11 November 2013

When starting a company there are numerous issues entrepreneurs have to contend with and these issues are made all the more complicated when it is a tech company.

While founders normally want to concentrate on developing their idea and growing the business, it is important to bear in mind the legal issues in order to protect the company further down the line.

Protecting Intellectual Property Rights

The Intellectual Property (IP) rights belonging to a tech company are integral to its success and the protection of these rights is essential.

IP results from the expression of an idea and can be a brand, an invention, a design or another intellectual creation. IP rights rely on various forms of unregistered and registered protection such as patents, trademarks, designs and copyright.

It is important when creating a tech company to fully protect IP as this is most likely the primary asset of the business.

Know Who Owns What IP Rights

Tech companies must ensure that when commissioning work from third parties, the IP rights are transferred to the company that commissions the work. This will allow the company to protect its assets and capitalise on them through brand exploitation and monetising opportunities that may arise without interference.

Ownership of IP rights can be set out in what is known as a contractor’s agreement which provides for the ownership/copyright of work to automatically be assigned to the party that commissions the work. This is normal practice for development companies that outsource work or use external contractors.

In order for the commissioner of the work to fully assert its ownership, the legal position must be clearly set out in an agreement between the parties before any work is undertaken.

Maintaining Agreement Between Founding Shareholders

Shareholders’ agreements are also important for start up tech companies to consider as they set out the rights and obligations of the company’s owners. They can be used to clarify the individual shareholders’ rights in regard to voting and management issues and detail what is to happen to shares when a shareholder leaves the company.

Not only will this serve to protect each individual shareholders but also the company as a whole, giving the company certainty for its future.

Appointing Directors

Directors may or may not be founders or shareholders so it is important that these positions are appointed carefully. Like shareholders, directors of the company will want to enjoy certain rights in their position as managers of the company.

Directors run the company on a daily basis and their position is set out in a service contract which is their contract of employment. This defines the director’s specific legal responsibilities and covers their remuneration, confidentiality, termination of employment as well as other relevant issues such as ownership of IP.

In order to protect the company’s position and its confidential information the directors will often be subject to non-compete clauses on termination of their directorship and confidentiality/ non-disclosure agreement (NDA).

Other Legal Considerations

There are also more general legal issues to consider which will apply to most start up organisations not just tech start-ups. These include leasing office premises, company registration, issuing shares to shareholders, other employment contracts, loan agreements and a host of other issues such as tax considerations. If you are starting a new business and need help or advice, contact James Crichton today via e-mail or by telephone on 0207 611 4848.