Launching a tech startup isn’t for the faint of heart. It requires a multitude of stages, hard work and determination. Given the challenges involved, starting your own company can be daunting. That’s why we always recommend getting help and advice wherever you can to get perspective and background that can make things easier.
We always have this idea that the advice we give is only as strong as our experience. And at OMQ we follow that close to the letter; we’re both lawyers and business owners.
As a startup ourselves, we’ve been through a lot of growing pains and have learned a lot along the way. We know what budding business owners go through while taking those first few steps.
Normally, startups will begin with a tech idea that’s been roughly developed, researched, prototyped and tested. After that, it’s easy to get lost on what you need to get into business.
If you’re launching a new tech business, there are a few things you should keep in mind when you deal with both legal and technical aspects of running your startup.
To that end, we’ve put together a step by step guide on the process. Here’s a guide on how to run a business for technology.
1. Structure Your Company
After you have a viable tech product, you’ll need to think first about how you’re going to structure your business around it. The main goal of any tech company is to help users and other companies solve a problem, but that won’t happen until you have have a way to make those transactions happen first.
To start, register your business name. I always recommend clients to conduct a name search through Canadian business registries or do a NUANs search to ensure that the name you want hasn’t been taken. You can also pay for a report to be generated by companies that offer this service if you aren’t confident about doing it on your own. To register your business name in Ontario, you can do it online for a small fee ($60 CAD). Renewal of your registration is required every 5 years. This will provide you with a business license and a business number.
Then you will need to sign up for a business account with the Canada Revenue Agency (CRA) and join the appropriate business programs they provide. These are meant to assist you in business-related transactions (payroll, GST/HST, etc). Afterwards, you can then move on to structuring your business.
Deciding how your business will be structured requires careful consideration. Will your business be a partnership? A sole proprietorship? Or are you looking to become incorporated down the line? Each structure will have legal ramifications, so you should keep the bigger picture in mind. What can you expect down the road or what position does your business need to be in so it can expand or scale up? This is where legal advice can help.
2. Get Contracts, Licenses, and Agreements In Order
When your startup is registered, the next step is to make sure you have all the legal paperwork in place. This extends to any municipal or provincial permits and licenses you may need for your business.
The need for paperwork will occur multiple times during your company’s lifespan, not just when you set your business up. When you grow or change the company’s structure, more paperwork will be required. If you take on a partner, for instance, you should set up a partnership agreement to avoid conflicts in the future. Other examples include:
–Office Space and Commercial Leases: Setting up an office space will require signing a commercial lease, which is a legally binding agreement. These are negotiable and, because they vary from business to business, can be very intricate and complex. There are a number of leasing options and clauses which you should get a lawyer to look at.
-Meeting Companies: As your startup slowly develops, you’ll find that networking will be a big part of your role as a business owner. However, when you’re discussing big moves with a potential investor for your company like collaborations on plans to create a new product, it may be good to record the meeting up front or take minutes to ensure that there’s no confusion when you set up a legal contract.
-Confidentiality and Non-disclosure agreements: The technology industry is a competitive one. As such, it only makes sense to draft up a non-disclosure agreement. Such an agreement is useful when buying a business, hiring new people, or testing new ideas. This type of agreement ensures that the party signing it is legally bound to keep silent about your company’s developments or legal action can be taken against them.
-Employment agreements: Hiring employees means you need contracts to ensure that you’re meeting employment standards. In Canada, the workforce is governed by federal laws as stated in the Canada Labour Code and the federal Employment Equity Act. Moreover, you must conform to certain provincial laws, as well. The Ontario Ministry of Labour, for instance has different regulations pertaining to termination clauses, fixed term agreements, and written offers than other provinces in the country.
-Shareholders: Going public with your company is an area where you’ll need legal help to ensure all requirements are met when you issue shares. You’ll certainly want to implement a shareholders agreement, which can protect your shareholders and your corporation. It can prevent the dilution of company shares or prevent a shareholders’ block against certain investors.
Before you tie yourself into terms and conditions in any of the above areas which you may or may not fully understand, I’d advise a legal review of the documents before you sign them.
3. Obtain Business Financing
Like with any other startup, you’ll have to keep financing in mind. Seed financing, venture captial and investments from angel investors can be a great financing opportunities at the very beginning. Government business grants, though harder to obtain, are another good alternative for certain sectors. Love money and bank loans are standard options, and there are small business financing programs, as well.
Again, do be aware that applying for any type of financing requires signing a contract. You may want to consult a lawyer on repayment schedules or conditions that need to be met. Most startup owners don’t realize the depth to which they are financially obligated until it’s too late.
4. Find The Right Resources
-Utilities and Expenses: Dealing with a technology business requires a different set of tools and resources than say what you would need as a restaurant owner. If you’re developing a database software tool, for instance, you’ll require servers and data storage. As a tech company, hardware, electrical utilities and internet will be one of your monthly concerns.
You’ll need to be able to manage your business account and business expenses. When it comes to taxes, your business structure will play a huge role in how the CRA calculates your taxes. From utilities to office equipment, this means knowing what deductions you can claim as a business.
-Tech resources: It’s common to bootstrap your startup in the first stages before any steady revenue comes in. Being a tech business, it can be hard when the technology you use is expensive to license or develop. Fortunately, there are effective free workarounds. There are sources like Amazon Web Services (database), GitHub (development platform), Toptal (for freelance help) and other free startup tools for any task you can think of as you start building your startup.
-Networking and Development Resources: Accelerators and incubators are extremely helpful when launching your first product as a business.
Accelerators are targeted directly at helping entrepreneur-minded individuals at getting startup ideas developed. These for-profit organizations are usually founded by angel investors and venture capitalists focused on raw talent. Ultimately, they will be looking to invest in the most promising innovations for which they will award money in exchange for an equity stake. Applications for an office residence at an accelerator like The DMZ at Ryerson, is competitive with spaces being available for only 3-5 months.
Incubators, in contrast, are non-profit organizations that are focused on companies at all stages of development, from fledgling startup to established companies. As such, company development at a tech incubator can occur over a span of years. These organizations provide companies with a network of resources, usually sourcing them from other companies residing at the incubator. Incubators like MaRS , located in downtown Toronto, is just one example of these powerful communities of like-minded companies in one place.
5. Use Technology To Help You Deal With Lawyers
While we’re on the subject of technology, there are some things to make working on your tech startup with lawyers go faster. While you don’t necessarily have to be a tech wizard in order to use tech, just a few tools can expedite the process.
-Dropbox – This tool makes management for small to medium firms easier. It is used by lawyers as a virtual server where they can share and update important non-confidential documents, making version control simple. File transfers are secure with its two-step authentication, sharing restrictions, and encrypted folders. So don’t be surprised if you interact with drafts of legal documents from your lawyer via Dropbox.
-Office 365 or Google Docs – For quick sharing or drafts, these two tools are great staples. From integration with other apps and the fact that one account with either platform (Google or Microsoft) will open you up to each of their respective services, these are very effective, very intuitive and best of all, free.
-Skype – A conference call may sometimes be better over Skype. You can access the app either online or through the desktop version. Most firms use it because it allows you to make one-on-one or group calls for free, exchange links to documents, and it’s integrated directly into Office 365.
If you’re looking for valuable advice at all stages of the game on business planning, strategic planning and corporate finance planning, don’t hesitate to reach out to our startup lawyers.