During the process of providing legal consulting for startups, I have noticed that many startup CEOs often share the same set of legal concerns. In the early stages, startups typically focus on products, customers, fundraising, revenue, and growth rate. However, without properly handling foundational legal issues, businesses may face risks regarding capital contribution, intellectual property, contracts, personnel, personal data, or investor relations.
Therefore, this article synthesizes the 5 questions I receive the most from startup CEOs. These are very practical questions that often arise when a startup is preparing to establish a company, onboarding co-founders, beginning to sign contracts with customers, hiring the first employees, or preparing for fundraising. Understanding these issues early on will help startup CEOs avoid common legal mistakes and build a more sustainable business foundation.
Legal Basis
- Law on Enterprises 2020;
- Civil Code 2015;
- Labor Code 2019;
- Law on Intellectual Property 2005, as amended and supplemented;
- Law on Investment 2020;
- Decree 13/2023/ND-CP on personal data protection.
I. WHY DO STARTUP CEOs NEED TO CARE ABOUT LEGAL MATTERS EARLY ON?
1.1. Startups often grow fast, but their legal systems cannot keep up
- Startups are often characterized by rapid growth, testing multiple business models, continuously changing products, and making decisions in a short period of time. This makes startups more flexible than traditional businesses, but it also easily leads to legal issues being overlooked.
- Many startup CEOs only start paying attention to legal matters when a dispute arises between co-founders, a customer requests a strict contract, an employee resigns and takes data with them, or an investor demands a legal due diligence review before injecting capital. By then, correcting mistakes usually costs much more time and money than preparing from the beginning.
- Therefore, the 5 questions I receive the most from startup CEOs below are not just isolated questions, but they also reflect the foundational legal pain points that startups should address as early as possible.
1.2. Good legal health helps startups raise capital and work with partners more easily
- A startup with a clean and clear legal profile usually builds better trust with investors, large customers, and strategic partners. Conversely, if a company has unclear equity ownership, lacks contracts with co-founders, fails to protect intellectual property, or has unstandardized customer contracts, investors may view this as a major risk.
- Hence, legal is not just a tool for dispute resolution, but also a part of a startup’s growth strategy. The earlier a startup CEO understands key legal questions, the better foundation the business will have to scale.
II. 5 QUESTIONS I RECEIVE THE MOST FROM STARTUP CEOs
2.1. Question 1: Should the company be incorporated right from the beginning?
- This is one of the 5 questions I receive the most from startup CEOs. Many founders start with an idea, then test the product, find their first customers, and only then consider incorporating the company. This approach can be suitable at a very early stage when the startup is just validating the market.
- However, if the startup has begun signing contracts, receiving money from customers, onboarding multiple co-founders, hiring personnel, receiving investments, or generating regular revenue, incorporating the company is essential. A company helps establish a clear legal status, separates personal assets from business assets, and facilitates signing contracts, issuing invoices, opening bank accounts, and receiving capital contributions.
- Startup CEOs should also note that incorporating a company is not just about registering for a business license. Startups need to choose the appropriate corporate structure, allocate ownership percentages, determine the legal representative, register business lines, and establish a decision-making mechanism among members or shareholders.
2.2. Question 2: How should co-founders split equity?
- The question of splitting equity among co-founders is a highly sensitive issue. Many startups initially divide shares based on closeness, trust, or emotions. However, as the company grows, differences in contribution, working hours, capability, roles, and vision can create conflict.
- In principle, equity split should be based on multiple factors such as who contributed the idea, who developed the product, who contributed capital, who works full-time, who is responsible for sales, who holds the executive role, and who has the capability to create long-term value for the startup. It should not be split equally just to make things “easy to talk about” in the early stages.
- Startup CEOs should consider a stock vesting mechanism for co-founders. This mechanism allows equity to be earned gradually over time or based on milestones of contribution. If a co-founder leaves the company too early, the company still has a mechanism to handle the unvested portion of the shares.
- In addition, co-founders should have a written agreement regarding roles, responsibilities, ownership percentages, voting rights, share transfer rights, information confidentiality, and the exit process when someone leaves the startup.
2.3. Question 3: Do startups need to register for brand and product protection?
- This is also one of the 5 questions I receive the most from startup CEOs, especially those running tech, e-commerce, education, software, fashion, F&B, or creative service startups.
- Brands, logos, product names, source code, content, designs, training materials, operational processes, and customer data can all be vital assets of a startup. If not properly protected, startups risk having competitors use similar names, facing ownership disputes with partners, or failing to prove intellectual property assets during fundraising.
- For brands, startups should check trademark availability and registrability as early as possible, especially before investing heavily in marketing. If a brand has been built over a long period but is later discovered to be unregistrable or already registered by another party, the startup may have to change its name and brand identity, suffering significant damage.
- For tech products, startups also need to clarify ownership rights over source code, interfaces, technical documentation, and products developed by employees or freelancers. Contracts with personnel, contractors, or product development partners should include clear clauses on the transfer of intellectual property rights, confidentiality, and non-reuse of the startup’s assets.
2.4. Question 4: Is a watertight contract needed with customers and partners?
- Many startup CEOs in the early stages often want to sign contracts quickly to lock in customers, so they sometimes use simple templates, the partner’s contract, or even just confirm via emails and text messages. This approach can save time initially, but it easily creates risks when conflicts arise regarding scope of work, payment, timeline, warranty, confidentiality, or termination.
- Startups should have a set of basic contract templates tailored to their business model. For instance, software-as-a-service startups should have service agreements, terms of use, privacy policies, and service level agreements (SLAs) if needed. Commercial startups should have sales contracts, delivery terms, payment terms, return policies, and complaint handling mechanisms. Service startups should have clear terms regarding scope of work, delivery deadlines, customer responsibilities, and limitation of liability.
- A good contract is not necessarily a long and confusing one. A good contract clearly defines rights, obligations, scope of work, costs, deadlines, risks, and remedies for breaches. For a startup CEO, a contract is a tool to protect cash flow and business reputation, not just a paperwork formality.
2.5. Question 5: What do startups need to keep in mind when hiring their first employees?
- The first hires have a major impact on the culture, product, and growth rate of a startup. However, many startup CEOs are poorly prepared regarding labor records, contracts, compensation and benefits policies, data confidentiality, and ownership rights over products created by employees.
- When recruiting personnel, startups must clearly distinguish between a labor relationship, collaborators, freelancers, or independent contractors. Each form of cooperation has different management methods, obligations, and legal risks. If the reality is a labor relationship but the business only signs a collaborator contract to avoid obligations, the startup may face risks when a dispute occurs.
- Labor contracts should explicitly specify the position, job description, salary, working hours, probation period, data confidentiality, company property, ownership rights of products created during employment, and obligations upon termination.
- For tech startups or startups handling critical customer data, confidentiality and asset handover clauses upon resignation are absolutely essential. Startup CEOs should not wait until employees quit or a dispute happens to start standardizing labor records.
III. WHAT SHOULD STARTUP CEOs PREPARE BEFORE MEETING A LAWYER?
3.1. Prepare information about the business model
Before seeking legal advice, the startup CEO should prepare a brief description of the product, target customers, monetization strategy, founding team, fundraising status, and growth plan. This information helps the lawyer understand the context correctly and provide appropriate advice.
3.2. Prepare existing documents
Startups should prepare their business registration certificate (if incorporated), company charter, co-founder agreements, customer contracts, labor contracts, branding materials, privacy policies, and contracts with freelancers or suppliers. If no documents exist yet, the startup CEO should also state this clearly so the lawyer can assist in building them from scratch.
3.3. Identify legal priorities by stage
Not every startup needs to tackle all legal issues at the same time. In the early stages, startups can prioritize corporate structure, co-founder agreements, trademark protection, and customer contracts. In the growth stage, startups need to pay more attention to labor, personal data, fundraising, taxes, and internal compliance.
IV. FREQUENTLY ASKED QUESTIONS
4.1. Does a pre-revenue startup need a lawyer?
It may be necessary, especially if the startup has multiple co-founders, is developing a product, preparing for fundraising, or possesses critical intellectual property. A lawyer can help the startup establish its legal foundation before generating revenue.
4.2. Should a startup CEO hire a lawyer on a project basis or a retainer basis?
If the startup only has one specific issue, hiring a lawyer on a project-by-project basis may be appropriate. If the startup regularly signs contracts, hires personnel, processes data, or raises capital, they should consider a legal retainer service (ongoing legal consultation).
4.3. What is the most common legal mistake made by startups?
The most common mistake is only addressing legal matters after a dispute has already arisen or when an investor requests it. This forces startups to rewrite and fix many documents, wastes time, and can delay the fundraising progress.
CONCLUSION
The 5 questions I receive the most from startup CEOs usually revolve around whether to incorporate a company, how to split equity among co-founders, protecting the brand, signing contracts with customers, and hiring the first employees. These are all foundational legal issues that directly affect the long-term development of a startup.
Startup CEOs do not necessarily have to resolve every legal issue immediately, but they should know which critical risks to prioritize. Early legal preparation helps startups minimize internal disputes, protect intellectual property, operate more professionally with customers, and build better trust when fundraising or expanding the business.
