Startups do legal work in the wrong order, and it is usually for a good reason. You are building a product and finding customers. Company housekeeping can wait.
Until it cannot. Then a term sheet arrives with a four-week timetable, and someone asks for the founder IP assignments.
None of what follows is urgent this week. All of it is much harder to fix once a funding timeline has started.
The legal structure affects control, liability, tax, investment readiness and the ability to issue equity. Confirm the business is actually operating through the entity you think it is, and that the company, ABN, tax, business name, domain and other registrations are current.
On founder equity, make sure share numbers, percentages and issue terms are documented properly. Then address the awkward question early: what happens if a founder leaves before contributing what everyone expected? Vesting, buy-back and leaver arrangements exist for exactly that scenario, and they are far easier to agree while everyone is optimistic.
A startup cannot safely commercialise or raise capital against IP it does not own or have sufficient rights to use.
Have founders, employees and contractors assigned the relevant IP to the company? Are pre-existing IP, third-party materials and continuing licences documented? This is the item that most often stalls due diligence, and the fix requires cooperation from people who may have left.
Related, and often missed: a business name or domain registration does not give you what a registered trade mark gives you. Consider clearance searches before you invest heavily in a brand, and make sure trade marks, domains, social accounts and brand assets sit with the correct entity.
Worker classification, duties, confidentiality, IP, remuneration and incentives all need to be in writing.
Are employment and contractor agreements current and suitable for what these people actually do? Are awards, superannuation, leave, restraints and equity incentives addressed? Getting classification wrong creates liabilities that compound quietly for years.
Development agreements should define scope, acceptance, ownership, third-party components, security and ongoing support.
Keep an inventory of open-source and third-party components, and review the licence obligations against your commercial model. On privacy, note that obligations depend on your activities and information practices, not simply your size. Map personal information from collection through to deletion, and make sure your customer terms match the product, pricing and delivery model you are really running.
Investors will expect an accurate record of shares, options, notes, SAFEs, approvals and ownership changes.
Does the cap table reconcile with ASIC records and the members register? Are share issues, transfers, options and board or shareholder approvals complete? Discrepancies here are common, tedious to unwind, and they signal to an investor that other records may be similarly loose.
Fifteen legal foundations across three stages: structure and IP, building and selling, and funding readiness. Includes a tracker so you can see what is in place, what is unclear and what needs action before you talk to investors.
Offers of shares and other securities may require disclosure unless a specific exemption applies.
Has the company identified the legal basis for each proposed offer? Are investor communications, offer limits and advertising consistent with that basis? Shares, preference shares, SAFEs and convertible notes each create different economic, governance and documentation consequences. Understand the valuation, conversion, maturity, security and priority terms before you sign anything, not after.
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Do this work before a funding timeline starts, not during one. Call us on (02) 8201 0051. Leo Lawyers advises founders and technology businesses on startup structures, IP, contracts and capital raising in New South Wales and Victoria.
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