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January, 10 2020
December, 6 2019
StartUps – Frequently Asked Questions
In the last few years the term "StartUps" has become quite popular, despite the fact that this business model first appeared in 1950s.
“StartUps or Young Entrepreneurships” are newly established enterprises which offer innovative ideas, aim at extremely fast business development and reach a wide audience.
Their main goal is to create a model that can evolve and repeat itself.
Due to the above-mentioned characteristics, a large percentage of these companies originate from the field of technology aiming at the dynamic development of an existing idea or the creation of an innovation that will satisfy a new need.
Based on our experience, the past has repeatedly demonstrated that there is no “secret recipe for success”. Each case is different and unique, it accepts either positive or negative influences from the various changes and fluctuations that occur in the domestic and international market, as they result from the political, economic, social, technological, environmental and legal framework.
Due to the complexity of the aforementioned factors as they arise from the markets, especially from the legal perspective, it is important for StartUps companies, from the conception of the idea until its realization, to cooperate with a law firm specializing in company and business law. Embracing this approach, you directly ensure the protection of the newly established company, the implementation of the correct procedures and due diligence on the points of cooperation. It also prevents uncertainties on terms and conditions, while providing legal and business advices at every stage of the business development.
Although each case is unique, we have noticed that there are common legal questions about the establishment of the StartUp corporate entity, such as:
- Which is the most appropriate type of forming a corporate entity for a “StartUp” company?
The most popular corporate entity of a "StartUp" type is the Limited Liability Company (LTD). This is because the company is a separate legal entity and the responsibility of the owners and shareholders is limited to their share of the investment capital, without any extension to their personal assets, unless of course the case is of a criminal nature.
- Where will the headquarters of the new entity’s StartUp be?
Because of the European Union as well as globalization, a “StartUp” company can choose its headquarters among multiple jurisdictions. Cyprus is one of the most popular jurisdictions for the incorporation of a company since it has a straightforward taxation system and a 12.5% corporate tax, one of the lowest in Europe. In addition, among others reasons, Cyprus has more than 60 double taxation treaties established with other countries, is a Member State of the European Union, operates in a favorable tax regime, has a low to zero retention of dividend taxes, any financial losses of a company may be transferred against future profits for an indefinite period, while the company registration is quick and immediate.
Additionally, Cyprus's investment strategy is strongly supported by the government and is constantly creating new business opportunities.
- How long does it take to establish a new legal entity in Cyprus?
7 – 9 days
- What is the appropriate structure / organization chart of the new legal entity “StartUp”?
The appropriate structure / organization chart of the new legal entity depends on a case-by-case basis; however, it is explained in a descriptive way in the Memorandum and Article of Association, defining the relations of the contracting parties.
- What should be mentioned in the Memorandum and Article of Association of the new legal entity?
The Memorandum and Article of Association mentions, all general terms as well as specific, all the conditions that ensure and regulate the relations of all the Contracting Parties involved, as they result from the legislative framework of the jurisdiction in which the new legal entity will operate.
- How will the ownership of partners and / or shareholders and employees be divided in the new legal entity?
The drafting of a shareholders’ agreement defines, inter alia, their obligations and rights, their meetings, the decision-making process to be followed, the terms and conditions of a voluntary resolution and the provision of the necessary mechanisms for the immediate settlement of disputes between the parties.
- What contracts are needed to ensure the stable and continuous development of the new legal entity?
It is wise to have shareholders and employee contracts that will define and clarify the relationship of all the parties involved.
- Is the drafting of a Privacy and Confidentiality Agreement needed?
Because of the innovative nature of “StartUps”, it is advised to draft a Privacy and Confidentiality Agreement when two or more members exist, to preserve the idea until the new entity has its proprietary intellectual property in its possession.
- Do the “StartUps” need to register their intellectual property?
The main competitive advantage and the most important predictor of StartUps' success is innovation. Therefore, safeguarding and protecting intellectual property is of major economic importance for the enterprises of this type.
My legal and business advice for StartUps, is to work with a law firm specialized in corporate, commercial and employment law, prior to the start of the company, which will also have the necessary knowledge and connections at an international level. This cooperation will ensure the protection of the new corporate entity while the company is in line with all procedures resulting from the legislative framework.
In addition, such cooperation is a necessary pillar for setting the right foundations of the enterprise, which can later evolve into an international “StartUp”. Unfortunately, we have repeatedly observed that the founders of companies turn to legal advisors at a later stage and they are called upon to solve various problems that could be avoided with the proper cooperation of reliable lawyers who are familiar with this company model.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.