Legal matters for startups – 7 things to get right early on

When building a startup, much of the focus is on developing the product, finding customers and growing the business. Getting to grips with a few fundamental legal matters early on can create better conditions for the journey ahead and make things easier as the company grows.

At a session with companies in Krinova’s incubator, business law firm Moll Wendén Law shared advice on some of the legal matters startups encounter on the journey from idea to sales and growth.

A startup rarely has the same legal or financial resources as a large company, but is largely subject to the same regulatory framework. It is therefore important to prioritise what matters most to the company at its current stage.

Here are seven areas to keep in mind.

1. Map out the legal landscape

What are you selling, to whom and in which market? At an early stage, it is important to understand which regulations affect the product or service and what requirements may arise along the way.

This includes considering:

• Is the business B2B or B2C?
• Which product- and industry-specific regulations apply?
• Which agreements are already in place?
• Which intellectual property and other assets are being created, and who owns them?
• How are personal data and other sensitive information handled?

For companies operating in areas such as food and feed, the regulatory framework is extensive, both in Sweden and across the EU. In addition, requirements that formally apply to the customer can have a direct impact on the startup. If the product does not meet the customer’s requirements, it may in practice be difficult to sell.

There may also be rules governing how the product can be marketed and which marketing claims the company needs to be able to substantiate.

The aim is to gain an early understanding of the legal landscape, rather than trying to resolve every issue from day one.

2. Put the rules between founders in writing

One clear piece of advice from Moll Wendén is to agree on the rules between the company’s founders early on and document them in an agreement.

A basic agreement can, for example, regulate how decisions are to be made, what happens if a co-founder leaves, how shares may be transferred and how changes in commitments should be handled.

The important thing is to put the key rules in place early. The agreement can then be reviewed as the company develops and circumstances change.

3. Identify and protect what creates value

For many startups, a large proportion of the company’s value lies in intangible assets, such as names, trade marks, technology, know-how, drawings and other materials.

It is therefore important to identify at an early stage what the company is creating and how it can be protected.

This may involve registering trade marks, securing relevant domain names or reviewing how trade secrets are handled. For information to be protected as a trade secret, the company also needs to treat it as confidential, for example through password protection, restricted access and confidentiality clauses in relevant agreements.

Copyright can also be an important asset. It arises automatically for material that meets the requirements for copyright protection and may, for example, cover texts, drawings and certain other materials.

4. Keep company documentation in order

When running a startup, it is easy to prioritise other things over maintaining company documentation. But when an investor wants to take a closer look at the business, having everything in order becomes important.

During due diligence, documents such as the share register, board minutes and shareholders’ agreements may be requested. By keeping documentation up to date on an ongoing basis, the company avoids having to reconstruct decisions, agreements and documents when an investment or other important transaction is already under way.

5. Read and be prepared to negotiate the customer’s agreement

As the company begins to sell, customer, supplier and collaboration agreements become increasingly important. When doing business with larger companies, it is also common to encounter extensive standard agreements.

Just because an agreement is described as “standard” does not mean that its terms cannot be discussed.

Some issues that are particularly important to consider include exclusivity and non-compete restrictions, payment terms, liability, confidentiality, rights, and terms relating to delivery and commissioning.

Even seemingly small details can have significant commercial implications. Long payment terms, for example, may mean that the startup has to wait a long time for payment, while the costs of delivering have already been incurred.

Moll Wendén’s advice is therefore to read and understand the implications of the agreement and to try to negotiate when the terms do not work for the company.

6. Use AI as a tool, not as the final word

AI can make legal work faster and more cost-effective. It can, for example, be used to create drafts or as a tool in the initial stages of working with legal matters.

However, even if an agreement appears thorough, it is important to understand what it actually means and whether its content is appropriate for the company’s situation. AI can be a useful tool for producing an initial draft, but for agreements and other important legal matters, a lawyer may need to review the content and assess whether it is appropriate in light of the company’s circumstances.

7. Prioritise according to the company’s stage

Not everything needs to be done at once. Moll Wendén’s advice is to prioritise the legal matters that provide the greatest protection and benefit at the stage the company is currently in.

In the build phase, this may involve corporate structure, ownership and intangible assets. As sales begin, commercial agreements become more important, and ahead of an investment, documentation and corporate formalities need to be in order.

A legal roadmap can help the company determine what needs to be done now and what can wait.

Legal matters as part of building a company

Getting the legal side right does not mean that startups should spend all their time or limited resources on legal matters. It is about putting sufficiently robust structures in place so that they can focus on the business while reducing the risk of costly problems further down the line.

The session with Moll Wendén Law is part of the support provided to companies in Krinova’s incubator. Through the programme, entrepreneurs have the opportunity to meet a range of experts and gain access to expertise in areas that become important as their companies develop and grow.

This article is based on general advice shared by Moll Wendén Law during a session within Krinova’s incubator. The content is general in nature and should not be regarded as legal advice in any individual case.