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3 Common Legal Risks for Tech Startup Owners

By George Khoury, Esq. | Last updated on

Starting a new business, particularly a tech startup, can be filled with legal pitfalls for the unprepared. If a company is not ready to address legal problems that can arise early on, then VCs will be unlikely to invest, and the startup may not be able to survive past infancy.

Since each business is different, the potential legal problems tend to vary, even within industries. Below, you'll find three of the more common legal risks that tech startups face.

Intellectual property law is complex, confusing, and requires specialized knowledge of both a specific industry and the law. Even tech startups that have intellectual property attorneys need to be aware of the fact that copyrights and patents can sometimes exist in relative obscurity.

Infringement lawsuits can sometimes be unavoidable, but if a startup consulted an IP attorney before opening for business, the likelihood of surviving the lawsuit will be much better (assuming the IP attorney performed due diligence and approved the idea).

2. Being Exploited by Money Launderers and Scammers

While being vigilant about traditional forms of crime, such as physical theft, or even identity theft, hacking, and piracy, businesses can often still be exploited by money launderers and scammers in unexpected ways.

In recent years, affiliate selling programs with high commissions have been exploited by money launderers. Unfortunately, if a business does nothing to prevent money laundering, particularly when an audit would have revealed suspicious activity, a business can be implicated. New tech startups, especially those that allow users to conduct business transactions, or connect in real life with one and other, need to spend time analyzing how their product or service could be misused, or used for criminal activity.

3. Personal Liability

When a business owner truly believes in their idea or concept, it is often expected for them to put their money where their mouth is, as the saying goes. 

For some startups, in order to properly fund a business, an owner may need to sign personal guarantees, or use personal assets as collateral, in addition to injecting personal capital into the business. Unfortunately, doing so exposes an owner to potential financial losses as well as personal liability. Additionally, if a business is not properly structured, or an owner does not adhere to the structure, an owner could be held personally liable in a wide variety of legal cases against the business.

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