How to avoid getting Sued as a Startup
Some of the common challenges that most startups face include funding, staffing, getting an office space, scaling profitably, and of course, selling the product or service itself.
As a business owner, in working your way past these hurdles, one of the things you will want to avoid is a lawsuit. A lawsuit could cripple operations, damage your brand’s growing reputation, or even, take you out of business.
Whilst some bigger brands may be able to bear the brunt of a lawsuit filed against them and bounce back, it’s best for startups to generally avoid being sued rather than looking for a way out of it.
So, here are a few tips and pointers to avoid being sued as a startup.
The very first way to keep your business on the safe side of the law is to be registered. This means making your business a legal entity. Running your business without proper registration puts your business in jeopardy.
The Corporate Affairs Commission (CAC) – The CAC is the body in charge of business/Company registrations in Nigeria and it is constantly deploying means of making it easier to register businesses in Nigeria. If the stress of the registration process is what’s deterring you from registering, click here and have DIYLaw handle that process seamlessly for you.
As boring as the word ‘regulations’ sounds, they are vital for the good of your business, and you must pay attention to them. There are certain regulations that govern social and economic matters in Nigeria. These include matters such as business income and payroll taxation.
No matter the sphere of your business, there are laws that the government has provided to govern your area of business. If you’re in Fintech, get to know the policies and regulations set in place by bodies such as The Central Bank of Nigeria (CBN). Or perhaps you’re a legal startup like us, you need to be conversant with the Nigerian Bar Association (NBA) and its policies. More often than not, your company won’t be allowed to function without licences and approvals from some of these regulatory bodies.
We are aware that there are complexities involved in complying with regulations and protocols that have to be followed, but in your best interest, we advise that you follow them. Do your research. Legal advice is best, but you can do some preliminary work yourself. Operating without compliance with regulation is likely to be a criminal offence for which you can be prosecuted. You can read up on some of the regulatory bodies in Nigeria here.
A contract isn’t just any legal document, it is a fundamental part of building a legally safe business. Good companies are founded on good contracts, and properly done contracts lead to good deals. As a startup, there are a number of contracts that you will need to have within the first few years and even throughout your business.
Some of these contracts include Shareholders’ Agreements, Employment contracts, Non-disclosure Agreements and Terms and Conditions. You must aim at getting these contracts nailed down as you set up your company and or business. As you grow, other contracts like Consultancy Agreements will come in relevant and handy, and then, depending on what your company does, you can think bigger.
These contracts are not all lengthy – but it is vital that you have them created by professionals and not just downloaded from random sites on the internet! It is highly likely that, at some point, you will have a disgruntled client/employee/director. If you can point to a valid contract at that moment that details the rights, obligations and liabilities of all parties, chances are that the dispute can be settled quickly, easily and affordably, with no-one being sued.
You can get some of these contracts/documents here on the DIYLaw platform.
Intellectual Property (IP)
This has become very popular lately, with many cases and lawsuits to show for it. It is an interesting area of law and there are few things more satisfying than being able to show others that your brand is trademarked.
Protecting your IP – by trademark, patent or copyright – enables you to protect your brand and prevent others from using it for themselves. It grants you almost exclusive rights to market for that design or product. You can protect brand names, inventions, designs of products, and things you write, make or produce (this includes codes).
As much as you are doing your best as regards protecting your own IP, be wary of infringing on other companies’ rights. If you are exploiting another company’s IP without their permission and without a legal defense, they are within their rights to sue you. If you are planning on working with other companies and using their brands for any part of your planning process, you will need to consult a lawyer (who should be an IP specialist).
In the startup world, IP disputes are very common, as entrepreneurs compete for new business grounds constantly.
If your business will be collecting and storing user data, you will need to comply with the laws that protect that data from external eyes. With the introduction, in 2018, of the more stringent GDPR, this is an area of law that will be changing over the next few years, so keep an eye on it.
The easiest places to start with data protection are Privacy and Cookie Policies – they should be placed on your website.
Like with regulations earlier discussed, failure to adhere to these data protection provisions might mean more than negative Twitter publicity; it may mean criminal prosecution.
Yes, we know most startups don’t like to hear this, but tax IS important and has to be complied with. Your best bet is to speak to a tax specialist, understand the structure and nature of your company, and comply with corresponding tax obligations. Tax can be a drag, however, fraud is a bigger one.
Finally, let’s share some ‘Solomon’s wisdom’ with you.
Get yourself a lawyer or the services of one that oversees these core issues of your startup. Fortunately, DIYLaw offers all these here.