Starting and managing a technology business or any business for that matter can be quite tasking. A technology entrepreneur, with often lean resources, has to reasonably understand cash flow management, building sustainable company structure, marketing, the workings of the product/service offerings and still follow up to ensure that the developers place emphasis on functionality over just-another-cake-and-butter UI.
These and many other aspects of the business require that the entrepreneur enter relationships with others. I will share some of the common mistakes I’ve seen startups make while managing these important business relationship and managing the day to day affairs of the business.
Intellectual property related mistakes
The domain name is free, then the company name is not taken
There is a world of difference between a Domain name and a Company name but most Entrepreneurs believe that an available Domain name indicates that the Company name is also available in the Corporate Affairs Commission (CAC). This is not always the case. A sure way to ensure that the company name is available for your business is to run an availability/name check at the CAC.
Registering a business name makes my business a company
This is by far the commonest mistake I see startups make. It is not rare to find a situation where an entrepreneur wants to enjoy the legal personality conferred on a “limited liability company” while registered just as a business name.
A business name will at best protect the name from being used by other businesses, while you trade under that particular name and style. However, most entities don’t engage “business names” in serious business, because the proprietor is the alpha and omega of the business and this alienates Corporate Governance from the picture under this structure.
Also, apart from having the suffix “limited” or “ltd” at the end of its name, a company is a distinct legal person from its members. Members cannot be sued for the wrong of the company. This is one of the major distinguishing features between a Business Name and a Limited Liability Company.
Once I register my Company, the trademark is protected and my company doesn’t infringe any trademark
A company name and a trademark or tradename are governed by two different registries. While registering a trademark, the Companies’ Registry is not checked for any likely name infringement and vice versa. These two registries are mutually exclusive of each other. So, it is possible to register a company, while the trademark is the Intellectual Property (IP) of another company entirely. This also means that registering a company in the name of an existing trademark is a possibility. However, there are proven ways the law ensure that a company still claims its trademark that is already taken by another business and vice versa.
I will register my trademark when the business grows
A Trademark should be registered as soon as practicable. In fact, smart businesses seriously consider Trademark as a valuable property while planning their IP strategy. Nike swoosh is estimated to be worth over 13 billion dollars today even though it was handed over by Caroline Davidson for just 35 dollars.
No need to sign an NDA before making the pitch, NDA’s don’t matter anymore
While sharing your Startup idea or business strategy with another, it is important that you protect your brainchild with the necessary legal agreement, usually a Non Disclosure or Non Circumvention Agreement (NDA) will do.
Although some have argued that NDA’s are not foolproof documents to ensure the receiving party will not Disclose a Trade secret, it does not hurt for a disclosing party to put all legal apparatus in place in the event of a decision to seek legal redress.
For those who believe NDAs are turn-offs for investors, an alternative legal strategy may be to create an atmosphere of confidentiality in written interactions with a receiving party. This may later be useful in substantiating a claim in damages in an eventual legal action.
You are planning to market your invention before patenting it
It is a standard principle of patent law that, except for a few exceptions, public disclosure of an invention makes it ineligible for Patent protection. A publicly disclosed invention becomes part of “State of the Art”. Inventions that are part of State of the Art are non-patentable. In other words, registration at the Patent Registry comes before disclosure of your invention
Employment related mistakes
Thinking you own all intellectual property work done by your employee or people you commissioned to do work
There are usually two types of persons that work for a Company. We have those in a contract for service and those in a contract of service. While the former relates to the workers in day to day employ of a company that are being told what job to do and how to do it, the latter relates to Independent Contractors like an out-of-office programmer commissioned by a Company to create a website. For both categories of persons, the IP rights in the work done belongs to the author of the work in the first instance. In both cases, an agreement stating who owns the intellectual property of works created is always helpful. Without this agreement, your graphic designer owns your logo and your website designer owns your website. It is prudent to clarify this upfront through agreements.
You adapted an online agreement
A lot of tech startups prefer adapting agreements they find online and googling legal issues, instead of hiring a specialist that will do a good job and cover all the legal loopholes. There are oodles of forms and agreements to be found via Google, but not only will they not meet a specific need, they are also mostly based on US laws that are not apposite for Nigerian Legal System. For example, the term “Work for Hire” is indiscriminately used in a lot of agreements that I have reviewed for startups. Also, the clause on “Governing Law” in a lot of agreements I have seen is US law, which is obviously as a result of copy and paste work.
Most of these mistakes startups make can be avoided if a little more attention is paid to crossing the Ts and dotting the Is of their legal.
This post is intended to provide a general information on this topic. Specialist advice should be sought on your specific circumstance.
Image credit: Levi, via Flickr.