Legal Mistakes to Avoid in the Early Stages

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Co-founders Agreement

A good co-founder agreement is a must for every startup with more than one founder. Co-founder issues are the reason no 1 for startup failure. A good co-founder agreement should set clear rules and expectations and reduce the risk of conflicts.

Such an agreement should include at least:

  • The roles and responsibilities of each co-founder
  • What’s the input of each co-founder - in terms of time, capital, skills...
  • The share/equity of each co-founder
  • How the profit should be distributed
  • Salaries
  • Decision-making rules and processes
  • What happens if a co-founder doesn’t live up to the expectations

Read more about co-founder agreements here.


There are two ways to deal with intellectual property properly in order to avoid lawsuits:

  • Protect your own IP
  • Not breach others’ IP


  • Bad accounting
  • Not submitting the right form
  • The wrong form of incorporation


  • Violating consumer rights

Data protection and cybersecurity

Many startups think that data protection authorities will never go after them because they are still small. The privacy laws have been made for Googles and Facebooks of the world, they assume. They assume the same about cybersecurity.

That is not correct. There are people who hunt non-compliant businesses and draw them into legal issues.

Just like intellectual property has IP trolls, nowadays random justice warriors on the internet fight against businesses that do not comply with the applicable data protection laws.

Yes, there are billions of businesses and not as many trolls. But some businesses make the statistics.

Read about the data protection essential, GDPR compliance, and CCPA compliance.

Terms and Conditions

The Terms and Conditions are the contracts between you and your users.

You need to have a proper contract between both of you - one that would determine the relationship between you and the user and protect you from headaches should the user decide to cause them.

Read more about Terms and Conditions.

Employee v Independent contractor

When you need to hire, it is important to hire according to your needs, resources, and applicable laws.

The people you hire can be either employees or independent contractors (freelancers). Each of them has different legal requirements.

The employee may need to have health insurance covered by the employer and may need a visa, even if working remotely.

The independent contractor doesn’t require any insurance or work visas.

Businesses that need long-term worker may prefer to have employees. Businesses in early stages may do equally well and save resources by hiring contractors. You do the math yourself.


If you want to keep parts of your business away from the public, you’ll want to prevent your employees and contractors from disclosing it in public. That’s where non-disclosure agreements come handy. Read more about NDAs here.

Non-Compete Clauses

In your contract with the employee or the independent contractor, it is nice to protect your business with a non-compete clause.

This clause will prevent the employee or contractor to use the knowledge or other resources gained during their stint with you for competing with you after the departure.

For example, your employee or contractor conducts market research for you. They gain insights into your target market. That leads to some business ideas. Instead of helping you develop your business based on those insights, they leave and start their own company that competes with you. Without a non-compete clause, that would be perfectly legal. With a non-compete clause in the contract, you can sue them.

Asking interview questions that are prohibited by the law

There are some questions you must not ask during a job interview. The answers to these questions are considered to lead to discrimination. That’s why they are prohibited.

Some examples of prohibited questions:

Are you married?

Do you have children?

Do you plan to start a family soon?

What is your sexual orientation?

Do you have any medical conditions?

Aside from these examples, any questions which answer could allow you to discriminate is good to stay away from. If you really have to ask that kind of questions because it is important for the job, then disclose it to the candidate.


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