Necessity is the mother of invention. Whenever there is a need in society, nature works in concert with innovative individuals to create a solution for that need. When we needed to communicate over long distances mankind invented the telephone, when we needed to travel beyond the seas, the Wright brothers invented the aeroplane. It is the same spirit that leads to the sprouting of startups across the country every single day.
Considered a regional economic hub, Nairobi is home to some of the largest and most successful Startups in East Africa. Christened as the Sub Saharan Silicon Savannah, it is home to both large and small startups. Most startups follow a similar pattern of development; several individuals come together with a brilliant idea, they brainstorm about it and weigh its potential to succeed by doing market research and thereafter seek financing through either debt (bank loans) or investors (venture capitalists, angel investors, family and friends).
However, some startups end up failing or being in a dire financial situation or embroiled in endless power disputes because they fail to consider the legal elements that are pivotal to the successful formation of a startup. These are some of the things that any startup needs to consider at the onset;
1. FOUNDERS AGREEMENT
One of the things often ignored by startups is the need to have a Founder’s Agreement. A Founders Agreement is what governs the relationships between the founders of a startup. It defines the roles and responsibilities of each of the founder members. It establishes the organizational structure and hierarchy and leaves absolutely nothing to chance. It can go on to specify the type of contribution each member is to make in times of capital, skill, expertise and time. It is particularly handy when it comes to resolving disputes between the founding members of the startup should any arise.
2. FORMING THE RIGHT ENTITY
Another thing that Startups take little time to consider is the issue of forming the right engine to carry their idea. Different entities carry different advantages and disadvantages to them. Depending on the aim of the startup, one startup could greatly benefit from the tax reprieves that come with forming a Limited Liability Partnership while another could benefit from the unlimited nature of a Public Company. It is important to take time and evaluate what entity best fits your startup. It may be necessary to seek competent legal advice on this.
3. DEVELOPING PROPER EMPLOYEE AGREEMENTS
Founding a startup is a sensitive endeavour, some startups are based on novel ideas and a malicious employee can steal an idea and run away with it or also find a way of stealing clientele. This is why a startup needs to start thinking of Non-Disclosure Agreements and Non – Compete Clauses as soon as possible for all the persons involved in the Start-Up. In addition to this, it may be important to have very well defined Confidentiality Clauses wrapped into comprehensive Employment Contracts.
4. PROTECTING INTELLECTUAL PROPERTY RIGHTS
It is also very important for founders of a Startup to protect the intellectual property rights that arise from their startup. Be it copywriting source codes, patenting a device, registering a discovery as an industrial design, startups need to find active ways of protecting the intellectual property rights that attach to their startups to avoid the risk of them being duplicated by a malicious person elsewhere. A registered intellectual property right means that your ownership of your brilliant idea or device is legally recognized.
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I’ll be following this series for startups.
I’ll be following this series for startups!