As Pakistan witnesses a growing trend of ground-breaking, innovative ideas launching into the market, the main concern of all budding entrepreneurs is seeking investments and fundings. Many startups, even with the required finances, still experience failure and are unable to generate appropriate economic activity and or establish new revenue streams.
Why Do Startups Fail?
Startups usually face difficulties in Pakistan as entrepreneurs do not take into consideration the legal and policy aspects of startups, greatly underestimating the legal problems that a new business can be engulfed in. Delaying legal implications till the very last minute, when usually little can be done to save the business, is a mistake few startups can bounce back from. So, it is imperative that the legal side of startups be given the same importance as financial area for the business to truly flourish.
What Are the Most Common Legal Issues Potential Entrepreneurs in Pakistan Must Address?
If you have an ingenious idea, and are looking to turn it into a business, your path is bound to be paved with a multitude of legal complications, challenges and consequences. Here is a checklist of all legal matters you should address as soon as your startup launches to minimize all such legal issues:
1) Legal Structure:- It is essential that a legal structure of the startup is planned out and written down, outlining all decisions in relation to ownerships and titles, operational responsibilities, funds and investments, and division of equity among company founders. Such agreements in place will minimize potential disputes in the future and influence a startup’s liability and capacity of acquiring capital.
The legal structure of the startup has a two-tiered objective:
- To lay down in clear words all rights and obligations of all interested parties in the business for smooth functioning.
- As a precautionary measure, to safeguard business interests, and ensure the startup operates as a stable business platform in which clashes can be prevented and risks can be mitigated.
For an efficient legal structure, it is important for entrepreneurs to plan out the long-term vision of their startup and what their expectations and future goals from the venture are.
2) Develop Your Co-Founder Agreement:- A co-founder agreement is not necessarily a binding contract but it highly recommended to have it. This is an agreement between founders which entails the co-founder relationships, their responsibilities towards the company, structure of the company including, vesting schedules, exit strategies, ownership of intellectual property and such other matters integral to the running of the Company.
4) Intellectual Property Protections:- Startups must take the necessary steps in gaining intellectual property protections for their ideas, formulas, logos, inventions, software, or any other protectable materials, and cut down high legal battle costs in case of infringements, by applying at the earliest for any or all of the following:
- Trade secrets
5) Important Documents:- Startups need to make certain that all important documents, contracts and agreements, such as articles of association, memorandum of association, shareholder agreements, employee contracts, service contracts, non-disclosure agreements and etc must be drafted, signed and registered.
6) Non-disclosure Agreements:- Another most important legal barrier that Startup must hurdle is to issue non-disclosure agreements. These agreement safeguards the business strategy, trade secrets, algorithms, client information, and more. Therefore, a solid non-disclosure agreement must address the following:
- What constitutes confidential information.
- How confidential information should be handled.
- Who owns the confidential information.
- How long the confidential information should be maintained.
7) Filing Tax requirements:- The startups must be aware of their filing Tax requirements; the taxes and tax brackets applicable to their business. The companies need to be mindful of income taxes, as well as sales taxes, to be filed with FBR and any other relevant taxes to be filed with taxation authorities. Startups would also be required to file their annual bank statements with the returns.
How can Startups Fulfill All Their Legal Requirements?
KLA is a one-stop shop when it comes to startups; we provide startups with the necessary legal assistance required to efficiently introduce and advance their ideas into the market. Our team is available to provide you with the legal help in any and all legal matters, ranging from commercial, contract, employment and IP laws.
If you are looking to launch your startup in Pakistan or in Europe (particularly in Germany), our team will provide you with tailor-made plans and advice on:
- Incorporation of the company (advice on appropriate legal structures, company name etc.)
- Drafting of documents (articles of association, terms of service etc.)
- Financial matters (investment funding, bank loans)
- Corporate legal matters (governance compliance, asset and wealth management, financial services and regulations etc.)
- Intellectual property matters (acquiring trademarks, patents)
- Tax law advice
- Labor and employment law advice (drafting of employee contracts, dispute resolution)
- Advice on rent and property purchase
- Representing clients in litigation and dispute resolution
For more information on our work with startups, please see:
About Author:- Mr. Khawaja is an International Tech Lawyer based in Düsseldorf, Germany and managing partner of KLA Germany. He is known for providing robust solution with pragmatic approach on topics related to IT law, GDPR, IP, Startups, Investment and International Trade.