In the growing area of startup projects, we observe that entrepreneurs put in effort and pay attention to realizing their innovative ideas and projects but they do not pay the same level of attention to other parts of their enterprise, particularly to legal topics. This lack of attention both devalues the enterprise and results in legal and criminal liability of startup founders. As discussed in our other articles when entrepreneurs evaluate their startup with a professional manager perspective from day one, it both protects the value they create and the entrepreneurs themselves as well as establishing a favorable environment for future fundraising. We listed the main legal issues to be considered by startups as follows:
- Issuing the Company Shares: Issuing the shares and registering them in share ledger after establishing the company or closing of the first investment phase is a transaction usually skipped by startup founders. In order to avoid tax problems, it is highly recommended for enterprises, which are in search of fundraising/investment, to issue the shares and duly register in the relevant company records
- Keeping the Commercial Books: All opening and closing entries of commercial books should be made in due time, all decisions adopted should be recorded in relevant books and the share ledger should always reflect the latest status. Thus, the startup should avoid legal and tax implications as well as irregularities.
- Employment Agreements: The employment agreements between the company and the employees should be in writing. In order to protect the startup ad its product these agreements should especially include the clauses related to copyright, intellectual property rights of product/service, overtime work and working hours, non-competition and confidentiality limitations.
- Product Development and Copyright Agreements: Written copyright agreements should be executed with freelance consultants and other third parties who become involved in production development processes. The legal structure of these copyright agreements should be properly established. In addition to that, if there are cooperation agreements on product developments; or there are collaboration projects with the government, Scientific and Technological Research Council of Turkey (TÜBİTAK) or universities; these project agreements and specifications should be reviewed and considered carefully. Failing that may result in startup having no right on or income from the product it has developed.
- Web Site, Marketing and Distribution Agreements: The stage following product development should also be documented and organized with same caution as the first development stage. The exclusivity, distribution/marketing territory and agreement term issues should be considered carefully not to create future restrictions on startup and not to bear legal consequences like goodwill compensation claims.
- Trademark/Patent/Design Applications: Trademark, patent and design applications before Turkish Patent and Trademark Office should be made during the developments stage and before putting the product on market. In this way prior applications of malicious third parties and related market penetration problems or difficulties should be prevented. Advice of an experienced trademark and patent attorney should be adopted to determine the correct product/service classes, countries and to avoid forfeiture.
- Incentive: If the enterprise is founded in a free zone area or a technology zone and benefits from relevant incentives; it is recommended to work closely with experts for determining the incentive conditions, tax exemptions, choosing the right incentive program and keeping duly the relevant records.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.