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Start-up law: 6 things to keep in mind

Start-ups are fast-growing companies led by one or a few entrepreneurs designed to introduce unique services and products to the market while developing a scalable business model.

by Noémi Radnai 4.9.2019  |  6 min read Coworking
Start-up law: 6 things to keep in mind

If you are a start-upper, you obviously know this. But what you might not know is that start-ups can be registered by the Hungarian Intellectual Property Office (HIPO) as early-stage businesses, provided they comply with certain requirements set out in Government Decree 331/2017. (XI. 9.). As an early-stage business, you may draw in investors who benefit from supporting you if you have max. 20 employees, your company is younger than 3 years, its net revenue does not exceed HUF 100 million, it has no shares in any other company, no tax debts and carries out innovative activities.

Of course, your start-up is required to be in line with the law. To help you achieve this, the experts of Taylor Wessing Budapest have produced a short check list intended to help you avoid legal problems by highlighting a couple of legal areas that could pose a risk to your business.

1. Corporate matters

Choosing the right legal form to operate in is an important decision that may have long-term consequences on your business. Under Hungarian law, some legal forms require minimum capital upon establishment (ranging from HUF 3 million to HUF 20 million), some do not. The latter structure might seem more attractive, but at the same time you would be personally liable for the company’s financial losses. You need to think through whether the risk is worth it.

2. Capital

If you want your business to grow, you obviously need money. At first family (friends, fools) loans could suffice, but eventually you will find yourself in need of investors. Besides small business loans and crowdfunding, the most popular type of start-up funding – and the most complex one – is venture capital, when you give equity in your company in exchange for – usually financial – contribution. However, with big money comes big responsibility: legal, financial and the like. Be sure to involve legal professionals in the funding process, so that your interests and your whole business is properly protected.

 

3. Intellectual Property

The true strength of start-ups can be found in their intellectual property. Start-ups rely heavily on an idea, brand or invention that needs to be protected. This protection can be achieved by copyrights, patents or trademarks. Copyrights protect creative works (including software), patents guard inventions and trademarks differentiate the physical appearance of your product and brand from others. IP protection is essential if you want to keep your competitors from copying or stealing your products, even before founding your company.

4. Regulatory compliance

Better safe than sorry. Words to live by when it comes to being compliant with all the relevant legislation. Even though it might seem unnecessary at first to spend time and resources on this, do not be mistaken. Authorities will not care that you promised to obtain business licenses and permits the next day. Besides business permits, it is of course not possible to list everything you have to be on the lookout for, but these days consumer protection and data protection are two sensitive areas you should be attentive of.

 

5. Contracts

Your contracts define your relationship with your customers and your business partners, so well-drafted contracts are key to your success on the market. You should always keep in line with consumer protection laws with a good Terms of Use, while also protecting your interests and limiting your liability. Master Service Agreements (MSAs) are the basis of all your contracts with end-users, so it is advisable to include a lawyer when it comes to drafting contracts, because a good MSA serves as framework for future agreements such as your Service Level Agreements (SLAs) that specify the terms of your deal.

 

6. Employment Law

Last, but not least you need a good team. With the right employment conditions, vacation and benefits policies and of course with your vision for the start-up, you can attract a lot of talent. However, especially in a high-pressure work environment, disputes are usually not far behind. For this reason, it is essential to draw up well-negotiated employment contracts, which are required by law to be in writing anyway. You will also need internal policies and to keep records e.g. of worktime. Transparent, clear rules will help create a positive climate in the workplace.

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