5 legal pitfalls you should avoid when building your startup

Editor’s Note: On January 24, 2018, we held a Startup Legals event to help get everybody (especially the participants in the 2018 McGill Dobson Cup) up to speed about what they need to know and what they don’t. Whether it’s about patents, incorporation, or shareholders’ agreements, these are important questions that every startup faces at the beginning of their journey.

Our speakers included Philippe-Olivier Daniel from PodLegal, Camille Provencher & Leonardo Lombardi from the Compass Legal Clinic (which provides pro bono legal advice for startups), and Scott Rozansky from Dentons Canada LLP.

The Compass Startup Legal Clinic strives to provide valuable legal information to entrepreneurs who would otherwise be unable to obtain or fully comprehend the implications of such information, and, at the same time, create a practical learning environment for participating McGill law students.

#1. No shareholder’s agreement

 Although it might be an uncomfortable conversation to have, you need to figure out exactly what the terms and conditions of your shareholders’ agreement are. That way, you’re protecting yourselves down the line from each other and from investors who may try to take over when you don’t serve their interests. For both legal and financial reasons, a shareholders’ agreement is a MUST for startups.

#2. Inappropriate templates

Generic templates are no good. Every company is different, and therefore has different needs. A medical technology startup that has developed patent-pending technology is different from a startup that makes awesome muffins. You can’t copy-paste company A’s template and expect it to to work for company B. A good lawyer will know what templates are right for you based on their initial meeting with you. Keep in mind that companies like PodLegal and Fasken-Martineau provide unlimited templates for a fixed fee.

#3. Ignoring regulations

Do thorough research on your industry within the city you want to operate in. Every place has different laws and regulations: whether it’s food, alcohol, taxis, dietician services, or medical approval, there are usually some barriers before you can enter the market and start selling. The website of your provincial government is a good place to start doing your research.

#4. Unenforceable contracts

If you don’t have a way of measuring or proving a behavior that your contract is meant to defend from, don’t put it in the paperwork.

#5. Inaccurate corporate records

 Whether you’re outsourcing it, using software, or doing it yourself, always keep an up-to-date set of records of EXACTLY what’s going on in the company. This includes things like:

  • articles of amendment, including amended articles of incorporation or restated articles of incorporation
  • by-laws and their amendments
  • any unanimous shareholder agreement
  • minutes of meetings and shareholder resolutions
  • notices that have been filed

Want to learn more about startup legals? Read this book: Venture Deals.

Dobson Chronicles

Dobson Chronicles

The Dobson Chronicles is the official blog of the McGill Dobson Centre for Entrepreneurship.