Tech startups form every single day. More and more new companies are venturing into the technology world to make their millions, but they can often find themselves in major legal trouble if they aren’t careful. Technology, apps, and devices are heavily regulated, and failing to meet certain requirements can mean disaster before these businesses even get off the ground. There are many legal issues that come with starting any business, let alone a technology-based one. Here are 7 critical legal concerns for tech companies.
There are certain types of data that you are allowed to collect as a technology company and others that you are not allowed to collect. This data can only be used for specific reasons and users must have informed consent when it comes to their data. When companies don’t follow the regulations exactly, they can easily put themselves in hot water. This can lead to civil and sometimes even criminal charges. Tech businesses would be wise to avoid these situations altogether, but when they inadvertently find themselves in legal trouble, trial consulting services can help them build their case and protect them more effectively.
When tech companies apply for patents, it’s important to designate who owns the patent. Whether it is owned by an individual or a corporation is up to the person filing it and the agreement with the tech business. Startups underestimate how important patents are for new technology and how they will impact their business in the future. Working with patent lawyers can help address concerns that new startups may not consider.
Protecting data is vital. Not only does it protect your company from data loss, but it can also protect you from lawsuits as well. Do you remember when Target had a data breach? They paid out millions of dollars in fines because of their failure to protect their customers. This type of issue can impact not only your bottom line right now, but it can also impact your reputation and your finances for years to come. Protecting data isn’t just a good idea, it’s crucial for businesses. Use appropriate safeguards to create safe locations for accessing and storing data.
Did you know that a shareholder agreement is a legal document? It communicates and sets the terms of investment in writing and is a binding document unless dissolved as agreed upon. When the company does something to break this agreement, the shareholders can take legal action against the business. And if the shareholders participate in risky behavior, they can also be held legally liable.
Taxes are a big deal. Not paying enough for them or filing improperly can be a criminal offense. Tech startups would be wise to use a knowledgeable accountant from the start to ensure they don’t make any critical mistakes. Tech companies need to be careful to create the right corporate structure such as an S-Corp, C-Corp, or an LLC. Other tax issues can arise when companies fail to pay payroll taxes, sales taxes, and other state and federal taxes. This evasion of taxes whether intentional or not can yield large fines and/or criminal charges.
Contractors Vs. Employees
Would you be surprised to hear that many startup companies don’t properly hire? They make the mistake of trying to use contract labor for positions that should be regular employees. Often companies do this to try and save money in payroll taxes and company benefits, but it can easily backfire on them. By not giving the appropriate compensation due to people who work for them, they are breaking labor laws and that can lead to fines and prosecution. Startups would be wise to hire appropriately for their business and to understand the distinction between contractors and regular employees and what the legal requirements are for hire.
Tech startups have a lot to think about when it comes to the law. They need to ensure they adequately protect data and that they give proper notice when they collect data. These companies need to be sure they understand employment laws and how it affects their hiring decisions. Additionally, understanding that there are many tax implications with a startup can help owners get tax help from qualified professionals.