Startup Law: Is It Different Than Normal Business Law?
After the dot com bubble, we witnessed the rise of new companies, or “startups,” designed to develop scalable business models rapidly.
In this context, new legal practices arose amongst which venture capital law and “startup law.”
What is startup law, and how does it differ from general corporate law?
Business law, which is referred to as corporate law or commercial law, is the body of rules that govern the relationship between individuals or companies involved in commercial matters. It includes all the laws and regulations that dictate how we form, run, buy, sell, or close any business type.
Business law regulations determine the essential documents, such as articles of incorporation and bylaws, that a company needs to put in place to organize its internal matters and relationships with shareholders. They also tackle ongoing legal maintenance requirements (such as annual returns and resolutions and renewals of business name registrations).
While there are aspects of startup law similar to corporate law, the former is more comprehensive. It includes a broad array of legal domains, including corporate law, tax law, employment law, intellectual property law, and securities regulations.
Other areas of startup law are highly specialized, such as understanding venture capital deal terms. While the investment instruments used in venture capital funding are similar to loans and equity investments in the corporate law sector, venture capital financing involves an entirely separate set of business expectations, legal terms, and relationships. In a traditional corporate transaction, the expected return out of a loan or equity investment consists of high-interest rates and predictable growth. However, in venture capital financing, the returns depend on exceptionally high and rapid growth in the underlying business. A startup lawyer understands this dynamic and drafts the venture capital investment documents accordingly.
The depth of advice to be given to a startup is different than what is expected by corporate firms. Lawyers representing startup companies should be able to juggle between a wide range of laws to succeed in their practice. Startups expect their lawyer to understand their business in-depth and give them legal advice and business advice. In many ways, a startup lawyer should be a “real generalist.”
Finally, startup lawyers should gain a deep understanding of the startup ecosystem and build connections with entrepreneurs and investors. As a result, clients expect to and can benefit from their lawyer’s network.
All startups require both business law and startup law for streamlining their function.
While both laws may sound similar, business law and startup law are quite different, and they don’t have the same path: startup law is broader, more specialized, and more hands-on with the business.
If you are a startup or a venture capital investor looking for a lawyer who would understand your business’s nature, cut to the chase and visit our website to hire a specialized startup lawyer.