This has often been overlooked by many startup entrepreneurs: During the earliest stage of the startup, officially incorporating the company isn’t necessary, and could even be hindering the fast development of the startup.
The truth is that when you’re planning to run and manage your newly startup business with one or more founders (or co-founders), shareholders, directors, friends, or family members, you’ll have to agree upon what everyone’s rights or obligations are in your “startup”.
The first step of the solution is to create a shareholders agreement. This agreement can only apply when you have step two in place.
Step two is actually having an incorporated company. i.e. Properly and formally set up your company as a company, black and white on a contract, which must be signed by all the parties.
The shareholders agreement is sometimes also known as the articles of association. This agreement should clearly define the objectives of the business, organization of the company, the amount of shares, who possesses how many shares, and more. In short, the agreement acts effectively as the company’s constitution.
In the case of an I.T. (technology) startup where software is the main product, it may have to include defining the scope of the minimum viable product. This will involve some types of intellectual property. The problem that you must understand that when a few co-founders start working together on the project, the intellectual property belongs to everyone who works on it.
Again, the solution is to register a company! This lets all the co-founders have formal contracts or agreements in place. This would directly accredit the intellectual property to the company, not the individual persons i.e. each co-founders.
When one or more co-founders happen to depart from the company, or terminate the contract or agreement (due to some personal reasons), the agreement or contract (that contains the intellectual property) and were signed by all the parties would automatically become the intellectual property of the company.
One last advantage that you mustn’t overlooked is when your company needs to raise fund from potential investors. The investors would almost mostly demand that the important intellectual property actually belong to the company.