“If you think it’s expensive to hire a professional, wait till you hire an amateur .”
There is a certain category of people that seem to yonder farther in intellect than the average person in the business circles. We find that these people are given positions of leadership for reasons so obvious; the entity would be better off under their guidance. No wonder, capitalism dictates that after toiling for a while, successful entrepreneurs hand over executive duties to corporates like lawyers and able brained accountants or a mentally upright offspring of the founder, either way a fresh, alert and crafty mind is the gist. The world is over 7.6 billion people today and thereby bursting with ambitions, human ambitions for exclusive survival, after all survival is for the fittest. That level of ambition is currently at a rate of $3 trillion (the startup ecosystem net worth) and it is growing exponentially. This depicts the epitome of the sheer will, grit and tenacity of Generation X where teenagers make up the lively corner of the C-Suite.
One of the most important elements in launching a startup is the legal work involved and all entrepreneurs must know this so as to streamline their expectations when setting out to engage legal counsel whenever the need arises. Notably however, the actual value is created by the expectation of risk management expertise from the lawyer. Whether it is through informed decision making, contract drafting or liability insurance, the priceless skillset of a lawyer is the adroit ability to shift between advisor on risk to robust participant in solutions with an added flavor of corporate perception and native wit. (Linda Cole, Joshua Fox 2019)
A startup lawyer’s agility is as much a mindset as it is an expertise hence they come with the ability to gauge between analysis and opinion and offer it at the appropriate time. The navigation of the rugged terrain of the startup ecosystem dictates the need for a collaborative communicator and active listener specifically skilled and adorned in the profession of representing another’s interests by considering objectives and leverage relative to the counterparty’s. A startup lawyer brings to the table the time saving factor by cutting the chase. Legal implications of business decisions and contractual preferences create a number of questions for which a lawyer will seek a collective answer by asking the most relevant of the questions. The logic behind this attribute is not usually possessed by lay business men and it explains why an entrepreneur must look to a lawyer for practical and appropriate advise. For maximum value, a startup lawyer well versed with the business’ essentials is ideal for advancing its purpose, however, until the founders and co-founders of these startups come to this realization, the startup failure rate will sustain.
As a given, any startup would face financial issues and problems for several reasons and in different stages (Colombo & Piva, 2008; Tanha et al., 2011; Salamzadeh, 2015 a, b; Salamzadeh et al., 2015). A case in point is the ongoing commercial case of Ham Enterprises v DTB Bank which has the capacity to send the bank to more than 5 years of only working for the plaintiff. Without a startup lawyer looking out for your business’ best interests, it is easy to miss common legal mishaps that would eventually lead to imminent demise of the set up. Startups need lawyers and not templates for the various legal issues that arise and it is only with time that individual businesses wake up to this reality. Below are some of those aforementioned common legal issues;
a) Corporate Structure.
Starting a business requires one to zero down on an appropriate structure of corporation; Limited Liability Corporation, Limited Partnership, Limited Liability Partnership, General Partnerships, Sole Proprietorships, Joint Ventures or Non-Profit Organizations. By considering their business needs and goals and sharing with a lawyer of choice to get feedback on the corresponding implications, entrepreneurs get to understand the rights and responsibilities that accrue including the tax burdens therewith. The advantages of choosing the appropriate corporate structure range from avoiding unwanted inside disputes to saving the co-founders from unnecessarily high and obviously avoidable taxes and liabilities. Such decisions have important consequences on a startup’s overall structure and performance in later life hence they deserve to be carefully thought through with legal counsel. (Van de Ven et al, 1984)
Whilst they spend most of their time telling you what you cannot do, rather than what you can do and getting you out of trouble when you do the wrong thing, their most important role is as the guardians of the company’s future, the intellectual property. A company’s assets involve buildings and Intellectual property rights. Innovative startups putting new products and concepts to the marketplace benefit a lot from protecting their ideas. Patents, copyrights and trademarks offer a business the power of exclusivity setting it apart from its competitors and maximizing profits. IP rights therefore give a business the right to use original works and also enter NDAs with anyone they expose their ideas to. Since IP is an asset, the protection thereof is vital to the livelihood of the business as it protects it from not only idea thieves (like your smart employees or even the Chinese) but also back daters that may opt to file law suits on grounds of the date of registration. The following laws govern IP rights in Uganda; Constitution of the Republic of Uganda, Industrial Property Act of 2014, Trademarks Act of 2010, Trade Secrets Protection Act of 2009, and Copyright and Neighbouring Rights Act of 2006. A Patent is usually given where an invention is not only industrially applicable but also novel whilst Utility Models are provided when the invention is new and also industrially applicable. The difference between the two and their extent of operation usually requires legal counsel with a fine eye for detail for IP rights are a big deal. A case in point is the MacDonald’s global fast-food chain which was grabbed from the founder brothers by Ray Croc on IP technicalities.
All startups have key relationships and partnerships they need to maintain for the smooth running of their business. These may be suppliers, clients, contractors or even employees and the contracts ought to be standard form depending on the industry of the business. These agreements usually lay out the scope of the work, circumstances, frequency and amount of compensation that is to be expected. Lawyers exercise a lot of smart practice whilst drafting contracts so as to put them in favour of their clients hence the importance to have an in-house counsel whose loyalty to the business is greater than their expertise at law to be on the lookout for any dissimulation from the adversaries. NDAs, non-compete and non-solicitation agreements are some of the standard form contracts that may be required by a business but none of these can be drafted to their best potential without active legal counsel.
Everyone and their uncle know the dispute that arose between co-founders at Apple Inc. that saw Steve Jobs step down or even at Facebook Inc. where independent directors like Kenneth Chenault, White House Chief of Staff Erskine Bowles, Netflix CEO Reed Hastings and former Genetech Executive Susan Desmond-Hellmann stepped down over mere governance and political policy disagreements with Top Boy Mark. Twitter CEO, Jack Dorsey also came under fire earlier this year from his shareholders when he announced his plan to set camp in Africa for investments. Such shoulder rubbing has a final point of reference, the law. The disputes also occur between employers and employees, often times leading to dismissal or massive layoffs of employees.
Legal counsel plays the role of aligning roles and responsibilities among co-founders and rights and obligations amongst employees during and at termination of those relationships. Non-compliance to the same immediately provides legal grounds for an appropriate course of action. This works to eliminate the shrewdness and arbitrariness observed among most employers with an out of this world set of whims and eccentricity like Elon Musk. Some startups will hire an attorney to draft offer letters, separation agreements, stock option grants, and more but it is most imperative to hire legal counsel when drafting contracts for executives, as these stakeholders will carry the most risk considering that even the smallest modifications in phrasing or structure can cause significant legal ramifications. The Employment Act of 2006, The Occupational Safety and Health Act of 2006, The Uganda Retirement benefits Act and The Workers Compensation Act of 2000 are all Ugandan legislations that lay out the bare minimum standards of the employer-employee relations. A separate agreement by way of written or implied contract is sometimes necessary to stipulate further details of the relations. While reaching settled grounds on general expectations, there are many bases to cover and it is crucial to have a lawyer hit all those parameters exhaustively.
Regulations exist to promote certain strongly held public policy objectives which carry the force of law. Those entities that choose non-compliance often face hefty fines. Even if the startup can absorb the financial impact, the additional stress may injure the team or even set the business aback. The best way to avoid regulatory setbacks is to first understand relevant regulations and work to develop compliant policies from the beginning. This step is greatly simplified if working with a startup lawyer to enhance strict adherence to all the industrial regulations that pertain to the given business. The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is generally looked at as the primary legal vehicle to organize and run business. In Uganda though, startups are merely regulated by the Companies Act of 2012 but given their spontaneous mode of operation, the Companies Act of 2012 seems to be inexhaustive.
In conclusion thence, on top of a refurbished set of legislation governing the startup ecosystem of East Africa, respective governments need to acknowledge the opportunity in informal entrepreneurship for what it is. This will grant them the eyes to see and eventually the appreciation of their contribution to economic development. A failed startup is lost hope but not all hope is lost because only then shall we start to observe institutional guarantees against startup failure. Only then shall businessmen and women in East Africa begin to appreciate the importance of having counsel on speed dial. Only then shall the role in the title be fully realized!
The writer is a resident legal analyst and contributor at the Economic Misfit.