Most start-ups prioritize sales targets, giving little priority to completing legal tasks and researching legal risk management methods. Meanwhile, legal procedures are always one of the most time-consuming aspects of a business, even hindering the implementation of business strategies.
To prove that these are not just theoretical concepts, we will discuss in more detail some of the legal troubles that startups often encounter, as well as the proper methods for managing legal risks.
The issue of investment capital and conflicts of interest.
For a very long time, "business partnerships" have been a very popular form of collaboration, usually based primarily on mutual trust, with simple agreements based on the goodwill of the parties involved.
The startup market today is no exception; entrepreneurs start by enlisting partners to contribute money and effort to develop their projects, and only begin to consider forming a legal entity when investors provide funding.
With this approach, project founders and their partners are very likely to encounter conflicts related to capital contribution, capital utilization, asset ownership, and profit sharing, as agreements among members are often rudimentary, lacking any legal basis, certification, or protection from the law.
Typically, disputes between shareholders and owners are rare in the early stages of a startup. Disputes over profit sharing, capital contributions, etc., usually occur when the project is operating stably and generating high profits.
Therefore, founders and partners must have clear shareholder or member agreements at the time of business establishment and include them in the company's charter. In special cases, where the agreement's contents are not approved by the authorities in the charter, or where the agreements are confidential or sensitive, they can be included in internal resolutions and regulations, provided they do not violate the law and social ethics.
Intellectual Property Issues
In Vietnam, intellectual property violations, counterfeit goods, and pirated products are increasingly widespread, posing a major concern for businesses. Registering intellectual property rights not only demonstrates ownership but also provides a basis for filing complaints and lawsuits against businesses experiencing problems.
Therefore, when businesses have unique product or service ideas, they need to register intellectual property rights as soon as they launch the project or immediately after the business is established to minimize the risk of "intellectual property theft" by competitors.
Depending on the type of product or service, business owners should pay attention to protecting copyrights, trademarks, patents, utility models, etc. This is especially important for franchise businesses, chain development, or attracting investment.
The problem of the company model
Each type of business entity has its own specific legal regulations. Startups often tend to choose the joint-stock company model because they believe it makes it easier to raise investment capital. However, in reality, this model has many limitations for startups compared to a limited liability company.
A disadvantage of a joint-stock company is that if the company's business/structure is not yet stable, a change in leadership can negatively impact the business, as founding shareholders have the right to transfer their shares after three years of establishment. With a limited liability company (LLC), the business is more stable and can change its business type as it grows. Therefore, startups should carefully consider which company model best suits their development plans.
Key legal issues to consider at this stage include: liability regimes for asset and capital management, organizational structure, and profit distribution within the company.
The issue of business opportunities
To attract investors, besides showcasing your business's uniqueness and growth potential, you must also demonstrate transparency in your financial data, accounting records, and business principles. This is because independent investors often invest when a company is in its early stages of development. At that point, they aren't concerned with how your business was established, but rather with whether the project has a sound business model, a strong team, and clear rules.
Furthermore, to successfully transact with investors, you must ensure that you have complete legal documentation, comply with the law, and avoid risks so as not to miss out on lucrative deals.
In business, it is necessary to prepare documents related to the industry, capital, and meet one or more business conditions. For some business sectors, specialized licenses (sub-licenses) are mandatory.
Issues related to contracts and business transactions.
Before signing formal contracts, businesses should seek the help of legal experts and consultants to draft sample contracts for use in negotiations and signing agreements with partners and clients.
When disputes arise, young businesses are often the ones facing the most legal risks. The main reason is that young business owners pay less attention to legal clauses such as commitments, rights and obligations of the parties, sanctions, and solutions for resolving problems, focusing primarily on commercial terms (price, payment, and goods).
Tax and accounting issues
Tax regulations and policies change every year. To avoid legal violations, businesses need to constantly update their information to ensure compliance with regulations. Tax obligations are based on three principles: accuracy, completeness, and timeliness.
When establishing a business, it is necessary to pay attention to initial tax registration as well as declaring and determining the types of taxes that the business needs to pay (depending on the business sector). Basic taxes include: business license tax, value-added tax and corporate income tax, special consumption tax, environmental protection tax, import-export tax, etc.
Businesses that are late in submitting, overdue, or provide incorrect or incomplete declarations will be subject to penalties in accordance with current laws.
Advice for young businesses
Businesses should consider allocating resources to thoroughly understand regulations and keep abreast of changes in business laws. If necessary, seek advice from experienced lawyers or firms specializing in legal procedures, corporate tax, and state tax to receive guidance right from the initial stages of implementing the business idea.
If you're determined to start a business to achieve sustainable wealth, then you should pay close attention to legal risk management!
