Going into a new business is a big challenge. You have a detailed vision, you may have a business and financial plan in place. But few budding entrepreneurs think about the legal side of business, which is often crucial to success.
Going into a new business is a big challenge. You have a detailed vision, you may have a business and financial plan in place. But few budding entrepreneurs think about the legal side of business, which is often crucial to success.
Are you starting to build a startup? You’re sure to be overwhelmed by all the information that’s being thrown at you. You’re focusing on your product and target audience, dealing with funding and marketing, finding investors and mentors for your startup, and it’s a lot to take in all at once. Unfortunately, we don’t have any magic advice to relieve you of these worries, but instead we’ll add some well-intentioned legal advice on how to proceed so you don’t make starting your business even more complicated. We base this mainly on the experience of our clients who may not have had similar information beforehand.
So which mistakes do you make as a startup founder?
Whether you are a sole tra der or a business corporation, the company name or brand under which you will offer and sell your products or services is always important. Whether it is memorable and trendy enough is left for others to judge. But don’t forget about the legal aspect. Just like our client Mr. Marek, who invested thousands of crowns in marketing consultations, but eventually discovered that the chosen name was already taken. After the final verdict was in, Mr. Marek outsourced the development of the company’s logo and visual identity and approached us for help with company formation and registration. However, within a while we discovered that another company was already using an almost identical English name (with the difference of one letter -s at the end of the word, as an English plural).
Before selecting a company name, check that it is not interchangeable with an existing company. The name should not only be original but also legally unquestionable. It is a rule of law that the name must not only not be confused with the name of another existing company and also not be misleading. This may mean, for example, that you have the word of a product in your name, but your company sells electronics, or the name includes a location but the company does not operate in any way. Even as part of the registration process, you may be asked to modify the name, for example by adding an additional word of at least two syllables. However, this is a significantly easier option than dealing with the company name in court after it has been established.
Tip: When a business registers a trademark, it receives stronger legal protection than just registering the name in the commercial register.
We will guide you through the process of setting up your company and offer all the services you need for your business.
Advising on the appropriate company form is not exactly easy. We often see advice for setting up a startup in a form that will be suitable not only initially, but also with regard to the intended growth of the company. This certainly has some merit, unless you have large capital and investors. However, starting a stock company if you are starting your project alone in your garage is definitely not the best idea. A more complex legal form means higher costs not only for the formation but also for the subsequent operation of the company. Although a joint stock company is suitable for those who aim high and the prestige of the legal entity is also important to them. However, a multi-member board, which is generally more complicated than other companies, is not the place to start. On the other hand, a limited liability company or a public company is definitely a better option for the budding small businessman, especially in terms of cost.
It can be advantageous to start as a sole trader, which allows for a lower tax burden and administrative simplicity. If your business develops successfully, you can add to the complexity by setting up a limited company or a public limited company. Remember, however, that some activities require a licence or professional competence.
Are you choosing between a trade certificate and an LLC? Read our article where we list the pros and cons of both options.
Startup is usually not just a normal start-up (such as setting up an e-shop or starting a massage service). Instead, startups are typically associated with innovative business concepts, new processes and advanced technologies. Have you come up with something that has the potential to change the world one day? Then don’t let it get stolen! Sign non-disclosure agreements (NDAs ) with important suppliers, employees and customers. And don’t forget your partners. Otherwise, it can easily happen that your valuable, long and carefully built know-how ends up with your competitors or somewhere on the Internet, or your (former) business partner becomes your new competitor. You really don’t want that.
A non-disclosure agreement that is truly intended to provide effective protection must include penalties for breach of confidentiality, typically a contractual fine. Otherwise, it risks becoming a toothless piece of paper. The sanction should be proportionate to the nature of the confidential information and should not exclude any compensation for damages suffered by the protector as a result of the disclosure.
Tip: We have covered the terms of a non-disclosure agreement in detail in our article.
The previous topic is loosely linked to the current one: trademarks, domains, patents, utility models, etc. are the essence of any business. Don’t start one without proper protection of your IP (intellectual property). There is nothing sadder than having a competitor register your trademark after your business has taken off. We know the story of an experienced lawyer who had his investment in a promising startup“stolen” in this way.
In protecting your IP, also keep in mind the potential expansion of your business abroad. If you plan to sell your goods or services in Slovakia, register everything you need here right away. Keep in mind that many IP rights can be registered at EU level and therefore with protection in all member states.
Terms and conditions are an essential document for the relationship with customers and setting them up badly can lead to legal problems. And if you get them wrong, it can backfire badly. Like, for example, Ms Susan and Mr Honz, who have started an online sports and sports accessory sales business. However, their terms and conditions did not include proper information about complaints, for which they were fined by the Czech Trade Inspection Authority. When we consulted with them on their case and created new terms and conditions, we discovered that they had used a model terms and conditions from the internet. However, this was primarily aimed at a different type of business and was not applicable to their project. In fact, dissatisfied customers can be worse than fines.
Tip: We have covered e-shops and seven things not to forget in the terms and conditions in our article.
It does not pay to underestimate any legal documents. Just because you take notes at the time you sign a contract with your business partner and feel that you are both on the same page, doesn’t mean that a year from now you won’t be reading each other’s business contracts in a different way. Properly drafted and unchallenged contracts will bring order to your startup so you can focus on the project itself.
Many startups don’t know how to hire an employee properly or what it even entails when they want to fire them. In doing so, they often underestimate the complex legalities that taking care of employees entails. However, having the right employee relations in place is key to the success of the collaboration.
Poorly set up relationships end in leakage of know-how and experience, lawsuits and visits from the labour inspectorate. A separate issue is also the so widespread Schwarz system.
It is equally important to pay attention to social security and health insurance contributions for each employee, otherwise you run the risk of heavy penalties.
So pay attention to all documents that relate to HR. It will save you a lot of setbacks, disappointments and avoidable problems.
From our law practice: in our practice, we see start-up entrepreneurs who surround themselves with friends and acquaintances who work for them. Everything is “on good terms”, so to speak, or they formally cover themselves with an employment contract or a work contract randomly downloaded from the internet. Our client was also unpleasantly surprised in this way when he was sued by a former co-worker for invalidity of his termination. After careful examination of the original cooperation agreement under which the cooperation began, we discovered that it (quite mistakenly) referred to the provisions of the Civil Code on guardianship of incapacitated persons instead of the intended work contract.
Tip: Watch the video on the topic: How to set the terms of cooperation with a freelancer.
No, we don’t want to “warm the soup” and advertise our services. But we know from feedback from some of the clients mentioned above that it is advisable to consult a lawyer about some of the most important things in life. And starting a start-up is undoubtedly one of them.
Startups often make legal mistakes that can jeopardize their future. Some of the most common include an inappropriate company name, the wrong legal form of business, inadequate intellectual property protection or poorly set business terms. Illegal employment in the form of the Shvarc system is also a risk and can lead to heavy fines. Proper legal preparation, consultation with experts and careful contractual documentation can help startups avoid legal problems and ensure stable growth.
We will provide you with an experienced lawyer for your business. Whether you need his help on a spur-of-the-moment basis, or even for a whole year, he will always be there for you. When you order, you only pay the price for the first month of service, and payment is made at monthly intervals thereafter.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
