From the Launchpad - Anjan Neupane

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From the Launchpad - Anjan Neupane

The legal landscape for startups

According to Neupane, startups will not have to face the same kinds of complex problems that bigger companies do—as long as they comply with regulations while setting up. However, there might be a range of legal requirements that startups might need to adhere to depending on the industry they are in. Neupane thus encourages startups to train their focus on their business and innovation because the law will mould itself around the practices. “Do you remember following any sort of traffic laws before cars and motorbikes came into existence?,” asks Neupane. While dealing with the law, it is important to understand that the legal structure of the country is not well defined and that people might hold different views regarding laws and regulations.


Choosing your legal status

The most general legal requirement for a startup is deciding on its legal status. The type of legal entity you choose for yourself will affect how the company operates, and your choice might impose some restrictions, for instance, on tax payment and recording accounts. You may choose sole proprietor, partnership or some other form of legal entity for your startup. Neupane advises choosing sole proprietorship as your legal entity, as doing so would help raise capital for you in a more structured way. Furthermore, the entrepreneur would also need to know how to maintain documents regularly, with annual updates on employee’s roles, company structure, registering agents and so on.

Photos: Govinda Maharjan

Hiring employees

To avoid problems later on, startups need to have the right people working on the right things, in the right system. When you’re hiring people, you also need to understand that and make it known to your employees that as a startup you may not be able to pay them consistently. You have to ensure that all matters pertaining to salaries, work roles, possibilities for raise and so on is mentioned in recruitment contracts. Moreover, as you start to grow, to minimise conflicts to do with work roles, every employee must know what you and your company stand for.  

Hiring the right lawyer

“I’m going to be honest: I have spent a lot of time advising various companies, and among them, only few were startups. Startups’ legal needs are very different from matured companies,” says Neupane. Lawyers often don’t understand their client’s industry. If they don’t understand the industry the startup operates in, what’s the point of hiring them? They simply won’t know what to look out for. For the entrepreneurs, getting the right legal counsel is like getting a substantial base for your startup. However, you have to know how to pick a lawyer who will best serve your business goals.

Getting investors on board

There aren’t any rules for getting investors; mostly, it all comes down to understanding what variables make your startup attractive to them. Everything from the nature of your team, your product, the size of the market and the stage you’re at come into play. Whatever stage the business is in—seed, early or late—startups should think carefully about their strengths and use it as an asset. “It’s all about finding the right investors and proper investment that match business goals,” says Neupane. And even if you are setting up a startup with investment from friends and family, make sure to get all legal documents related to the investments in order. And among partners in a startup, it’s very important that all accounts are set up according to very stringent rules and criteria.

Registering your company’s trademark

“My essential advice to the startups is to trademark at least your name and logo to prevent others from ripping off your company,” says Neupane. Trademarks protect your brand, and your trademark takes on more importance as your brand grows. “Imagine that you’ve spent hundreds of hours creating your startup’s brand. You’ve got a great logo, social media accounts, reputation and marketing strategies. One year after launch, you’re excited that your brand recognition is growing. Then out of nowhere, a company claims that your name is confusingly similar to their existing trademark. Now you have to either fight them or change your startup’s name and branding.” However, most startups lack enough cash at the beginning, and applying for a trademark registration can be costly.

Tax payments

It is very important for investors to know how transparent is the company that they are willing to put their money in. “Maintaining financial documents and tax records properly can help startups get easy financing to scale their business,” says Neupane. Startups need to figure out how to track their financial transactions—expenses to revenue earned, billing and all financial obligations.

Mergers and acquisitions

Mergers and Acquisitions (M&A) may seem apparently identical but are very different. While a merger means the union of two companies into one, acquisition involves one company buying out another. Startups look to either being acquired by another company who can use the product they have created or acquire other ventures in order to eliminate competition in the market. M&A can help startups with cutting costs, enabling efficient use of resources and 40taxation. If a startup does not currently have the infrastructure or resources needed to scale, it may be the right time to start thinking about getting acquired. And if you are a startup that does not always focus on detailed record keeping, that can cause a problem during an M&A deal.
*First Published by the author in M&S VMAG


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Guest Tuesday, 28 March 2023