Launching a startup in the UAE is no ordinary feat. It requires a lot of diligence and hard work to finally set up your company and watch your dreams come true. Unfortunately, however, several founders tend to overlook critical legal issues during the initial stages of setting up, which costs them dearly in the long run. That’s why it is not surprising to learn that 9 out of 10 startups fail every year. If you are keen on creating an inspiring growth story and set up a profitable venture.

Here are key legal mistakes that most founders make and tips on how you can avoid them. 

Not entering into agreements with other founders 

Even if you start a venture with your best friend or spouse, the lack of a binding legal agreement is a huge red flag. It is not sufficient to agree and work on a good faith basis. Going into business without formal agreements jeopardizes your chances of seeking appropriate legal remedies when the relationship sours. 

As a business mentor, we would advise you to get a lawyer on board as soon as you know your co-founders. The lawyer can draw up a founder’s agreement focusing on crucial issues such as division of equity among the founders, responsibilities of each founder, investment commitment of each founder, and the time each founder is expected to spend towards running the startup. Ironing out these issues right in the beginning can save you from a lot of unnecessary trouble in the future. 

Starting without proper business structure

Choose the right structure for business has a direct impact on the ownership of your startup. For instance, from January 2021, the UAE government has allowed 100 percent foreign ownership for companies in certain industries, whereas earlier, the foreign ownership was limited to 49 percent, forcing every founder to look for an Emirati sponsor.

You also have the option to set up your venture as a Limited Liability Corporation, a Joint Venture, or a Representative or Branch office of a foreign company. However, it’s important to note that if you set up a representative office of a foreign parent company, you can use it only for marketing activities — representative offices are prohibited from carrying out other activities. So take some time to go over the options and choose one that best suits your needs. 

Failing to have a Non Disclosure Agreement 

During every stage of your business, you are likely to get in touch with several people to solicit their services. As a result, you may need to share a lot of confidential information about your business with them. Having a watertight Non Disclosure Agreement in place ensures that all the communication remains private and your intellectual property is safeguarded. 

Not having standard form contracts

Regardless of your industry, a standard form contract can save a lot of time when you are dealing with multiple vendors and customers. It will streamline your efforts and ensure that the same legal obligations apply in each case. The contract should cover the basics such as delivery or purchase commitments, price, penalties, delays, and remedies for breach of contract. 

You can always draft it on your own or speak to advisory legal consultants in UAE who provide legal and compliance services to draft one for you. Getting an attorney to draft a contract ensures that all the potential issues are taken into account and reflected in the draft standard form contract. 

Not choosing the right legal counsel 

Choosing the right attorney to handhold you while you navigate complex legal issues is extremely important. A lawyer advising a startup needs to be well-versed with a variety of laws and current market practices to draft industry-standard contracts. Moreover, understanding the nuances of corporate and finance laws is also vital as they affect the foundational aspects of your venture. 

Never rush into hiring a lawyer. Spend some time and shortlist a few law firms you want to work with and request them for a pitch. You can also speak to your friends for referrals. However, there is no one-size-fits-all approach for lawyering, and finding the right fit for your startup can take time. The bottom line is simple — choose an experienced legal counsel who can offer legal and strategic support on a continuing basis. 

Ready to launch your startup in the UAE ?

Congratulations on taking the first step towards setting up your venture in the UAE. We hope that the tips shared above help you to avoid these legal mistakes. However, running a startup can be challenging, especially if this is your first entrepreneurial venture. Speaking to a business mentor who can provide you tailored advice on various aspects of running your business can be helpful. Enrolling with a business growth consultant for mentoring sessions can make it easier for you to overcome challenges and take your business to newer heights. 

If you are looking for business mentors, reach out to Jupiter Business Mentors right away.  Our experienced legal consultants are here to provide you practical and actionable advice that helps you perform better as a business owner. We work as business mentors for startups and focus on giving structured advice that can propel your business forward. Our expertise lies in connecting experienced mentors to the start-up community and small & medium enterprises. We also offer different packages and discounts on bulk sessions to make it value for money for you. Sounds like something you are interested in? Don’t forget to log on to our website and browse through the mentor profiles to book a session.  If you subscribe today, we will also give away 90 minutes of free sessions with any six mentors on the platform.