Sound legal planning is key for successful startups
Expert lawyers from various practice areas answers questions from entrepreneurs at the event organized by Garrigues at Demium’s offices in Madrid.
Garrigues and startup incubator Demium host the ‘Una visión 360º’ event on the legal challenges faced by startups
When it comes to launching a startup, taking into account the legal aspects that can affect the new business can be essential for its short-, medium- and long-term viability. Proper knowledge of the regulations and legislation governing the area in which the startup operates and of measures that can benefit startups can help avoid many future problems and can also constitute added value and give the initiative a competitive edge. This was the message conveyed by Alejandro Sánchez del Campo, Counsel in the Startups & Open Innovation practice at Garrigues, and David Fernández del Campo, Head of Demium Academy, at the Una visión 360º de los retos legales de las startups event organized by Garrigues and Demium and attended by more than 100 entrepreneurs. They concluded that advice from professionals specializing in the different fields of law is essential.
A 360º LEGAL PERSPECTIVE FROM DIFFERENT PRACTICE AREAS
Corporate/Commercial: focusing on the shareholders’ agreement
One of the first legal aspects to consider is the importance of a well-structured shareholders’ agreement. Pablo Vinageras, Counsel in Garrigues’ corporate/commercial law practice, stressed that “the right distribution of share capital is the first step towards a coherent shareholders’ agreement”. He explained, “you need to understand what rights correspond to each investor and know how to give each investor the corresponding rights.” He emphasized the need to reach a consensus and avoid excessive negotiations: “We recommend choosing three or four essential matters for the founders.” He concluded by stating that “the shareholders’ agreement sets out the parameters for the pursuit of the activity, so it is vital that the legal framework and the business complement each other in order to ensure opportune or favorable development.”
Tax: important deductions
Tax aspects can also be a deciding factor for the viability of the business and when it comes to attracting investors. Garrigues tax partner Álvaro de la Cueva reminded the attendees that the Spanish tax system allows startups to be taxed at a reduced rate of 15%, instead of the current 25%, for the first two years, once they start generating profit. He added, “if the activity generates intangible assets of an industrial nature (“patents, utility models or some types of software”), reductions of up to 60% can be applied to the net income generated by licensing them to third parties, in addition to a tax credit for the R&D+i activities that generated the intangible assets.” He explained that, particularly in the case of business angels but also applicable to “friends, family and fools”, there are tax breaks for investing in startups, both nationally and in several autonomous regions. He also stated that “creating a stock options plan to retain the startup’s talent is neither easy nor quick in the case of a limited liability company, and there are a number of corporate/commercial, labor and tax drawbacks that make it advisable to opt for alternative remuneration systems.”
The IP aspects of the new business must also be front and center from the very outset. Cristina Mesa, principal associate in Garrigues’ IP practice, started off by stating that “intellectual property does not protect ideas”, issuing a warning: “If you have an idea, don’t tell anyone!” As she went on to explain, the difference between a successful startup and its rivals may lie in its IP portfolio: “That is what really sets you apart.” She added that when it comes to obtaining finance or selling your company, any due diligence review will focus on these assets, so it is important to ask yourself this: “Do you have a suitable IP policy?”
Data protection: data as an asset
Data protection is another key component for disruptive businesses. Corporate/Commercial partner Alejandro Padín noted that “the digital economy is based on information management, which includes a large amount of personal data.” He cautioned that “any application on electronic devices processes personal data and this processing must comply with strict regulations, although correct management of this data can bring economic benefits.” He also stressed that “using algorithms to process data affects data subjects’ rights.”
Labor and Employment: new digital rights
From a labor perspective, Felipe Ochoa, senior associate in Garrigues’ Labor and Employment practice, talked about workers’ new digital rights. He indicated that “flexibility in labor relationships is possible but increasingly regulated” and that “employers are trying to find a balance between prohibiting and allowing personal use of technological devices.” In any case, he warned that “the implementation of a policy regarding the right to disconnect takes immediate and binding effect” and he stressed the need to “pay special attention to labor regulations concerning the video, audio and location monitoring of employees.”
At the end of the event, entrepreneurs were able to speak to different Garrigues experts and put forward their legal queries in a speed advising format.