Why Early-Stage Startups Need Legal Advisors

The number of recognized startups in India grew from just 471 in 2016 to over 127,000 by April 2024

-DPIIT (Statista)

The startup ecosystem in India has witnessed remarkable growth in recent years, with innovative ideas and ambitious founders reshaping industries. However, Ms Vaneesa Agrawal, founder of Thinking Legal, highlights that navigating the legal landscape can be a daunting challenge, especially for early-stage startups.

The case of Phool, a sustainable floral brand, and its partnerships with legal advisors, who specialise in advising startups, perfectly highlight the crucial role legal advisors play in the success of young businesses.

The Importance of Legal Advisors for Early-Stage Startups

The Phool-Thinking Legal partnership underscores the critical role legal advisors play in the success of early-stage startups. Here are some key reasons why startups need legal expertise from the very beginning:

Entity Formation and Structure: Choosing the right legal entity, such as a private limited company, limited liability partnership, or sole proprietorship, is a crucial first step. Legal advisors like Thinking Legal, and Novojuris can help startups navigate the pros and cons of each option, ensuring the chosen structure aligns with the company’s long-term goals and growth plans.

Intellectual Property (IP) Protection: Startups often rely on innovative ideas, technologies, or processes as their competitive edge. Legal experts are therefore needed for startups to identify, register, and protect their intellectual property through patents, trademarks, copyrights, and trade secrets. This safeguards the startups unique value proposition.

Funding and Investment: As Phool’s case demonstrates, legal advisors play a pivotal role in securing funding and managing investor relationships. They can assist with drafting shareholder agreements, negotiating term sheets, and ensuring compliance with regulatory requirements. This partnership with expert firms like Thinking Legal and ICUL helps startups navigate the legal framework.

Contracts and Agreements: Startups often engage with a wide range of stakeholders, including employees, vendors, partners, and customers. Legal experts can help draft and review contracts, ensuring the startup’s interests are protected and potential disputes are minimised.

Compliance and Regulations: Startups must navigate a complex web of regulations, from labour laws and taxation to industry-specific compliance. Legal advisors can help startups stay up-to-date with evolving regulations, ensuring they operate within the legal framework and avoid costly penalties.

Dispute Resolution: Vaneesa Agrawal, the founder of Thinking Legal, highlights that in the event of legal disputes, whether with employees, partners, or customers, legal advisors can provide guidance on the appropriate course of action, helping startups resolve conflicts efficiently and protect their interests.

Startups

The Long-Term Benefits and Risks of Legal Partnerships for Startups

Having a reliable legal partner can bring significant long-term benefits to a startup’s growth journey. Legal advisors can provide strategic guidance on business decisions, ensuring that legal considerations are integrated into the startup’s overall strategy.

“By identifying and mitigating legal risks early on, startups can avoid costly and potentially damaging legal issues that could derail their growth. With a solid legal foundation, startups can scale their operations more confidently, knowing that their legal structure and agreements are robust and adaptable.”

- Vaneesa Agrawal, Thinking Legal

Startups that prioritize legal compliance and protection of their intellectual property can maintain a competitive edge in their market. Additionally, a startup with a strong legal foundation can build a positive reputation, attracting more investors, partners, and customers.

On the other hand, failing to engage a reliable legal partner can have severe repercussions for a startup. As noted by Vaneesa Agrawal, startups may enter into contracts or agreements that are unfavourable or even illegal, leading to costly and time-consuming legal disputes. Failure to comply with regulatory requirements can result in fines, penalties, or even business shutdowns. Neglecting to protect intellectual property can lead to unauthorized use or theft of the startup’s ideas, technologies, or processes. Investors may be deterred from investing in a startup that lacks a solid legal foundation, fearing legal risks and uncertainty.

“In extreme cases, startups that fail to address legal issues can face business shutdowns due to legal actions or regulatory penalties.”

- Vaneesa Agrawal, an expert SEBI lawyer.

Conclusion

Under the guidance of experts, startups can navigate the intricate legal terrain with confidence. From entity formation and intellectual property protection to navigating funding rounds, contracts, compliance matters, and even dispute resolution, legal advisors equip startups with the knowledge and tools they need to thrive.