Legal matters are too often a second-tier priority for early-stage startups. Without any names, WIDEN‘s team is sharing five real-life cases from their practice. Perhaps this will help you find a bit of inspiration if you’re dealing with similar issues. If this has piqued your interest, meet WIDEN’s team at Latitude59, on the second floor – visit the Legal Clinic for startups, founders, and future founders to get free advice from the legal jazz company (you can already book an appointment)!
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The founder didn’t sign any agreements with the freelance developers who helped the startup.
Intellectual property is the lifeblood of technology-based startups. If you use external developers for any IT development, you need a clear written agreement to obtain the intellectual property from the developer.
What was the story and the solution?
The founder had external help from a few developers, had paid them, but it was all done via email without any formal agreements. We provided the founder with a contract template where the work was described, and it was confirmed that the IP had passed with the signing of the contract to the startup. The key was to make the contract clear and practical because whenever you enter into written contracts after the work has been completed, negotiating is more difficult, and even kind and trusting people can become a bit skeptical and paranoid if signatures are requested after the work has already been completed. In real life, not all such cases resolve that easily. Sometimes founders end up paying extra for the signatures, and sometimes these cases end up as disputes.
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The startup chose a name that was not possible to be registered in their target market.
The brand behind the technical solution can make or break a startup. It’s important to ensure that the brand isn’t a copy of a registered trademark elsewhere.
What was the story and the solution?
The startup had chosen and registered a name in the EU that was impossible to register in a market outside the EU. We discussed the solution of creating a new brand, but the team loved their name and did not wish to change it. The startup decided to take a risk and operated in the desired market with a name that was not possible to change. However, they had a lucky break when the other company’s registration of the trademark was not renewed, and in this particular case, they were able to avoid rebranding.
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The startup issued option agreements with % of share capital instead of numbers of shares.
Option agreements give the employees of a startup an opportunity to become future shareholders. These documents must be drafted professionally to specify numbers of shares, not percentages of share capital, because every fundraising round naturally dilutes non-investing shareholders.
What was the story and the solution?
The founder had entered into a couple of option agreements with early-stage employees and accidentally wrote % of share capital instead of the number of shares in the option agreement. This issue was found in a fundraising Legal Due Diligence process. Luckily, the early-stage employees were very experienced and were happy to sign annexes to the option agreements that specified that the parties had something else in mind. However, the downside was that the process cost the startup valuable time in the fundraising process.
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Neglecting User Data Privacy and Security Compliance.
In the digital age, protecting user data is not only ethical but legally required. Startups that handle personal data must comply with international data protection laws such as GDPR in Europe or CCPA in California.
What was the story and the solution?
One of our clients initially overlooked the implications of GDPR, which resulted in a warning from a regulatory body. Luckily, only a warning. We assisted them in implementing robust data protection policies and training their team to manage data responsibly, thus preventing potential fines and reputational damage.
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Neglecting to Register for a License for a FinTech Solution.
For FinTech startups, obtaining the necessary financial licenses is crucial to operate legally and gain trust from customers and investors. Compliance with financial regulations cannot be an afterthought. Operating without a license is a criminal offence in Estonia.
What was the story and the solution?
A FinTech startup had developed a financial service technical solution but initially overlooked the need for a financial services license. This oversight was flagged during investor due diligence, putting crucial funding at risk. To address this, the client engaged with us and working with regulatory bodies, the startup then applied for and secured the necessary licenses, enabling them to continue operations legally and restore investor confidence. The downside of this was that obtaining such licenses takes time and while the investor was happy to invest without the license having yet been secured, the launch of the product had to be postponed.
To conclude
We solve similar legal questions on daily basis. The harder the question, the more we love it, because we at WIDEN are the Legal Jazz Company. Come visit our Free Legal Clinic at Latitude59 and hit us with your biggest legal fears and doubts – we’ll be happy to discuss potential solutions with you right there on the spot. Register your spot at the Free Legal Clinic right now:
