CORPORATE STRUCTURE AND STARTUPS

start a startup It requires planning and a lot of work to put the idea into practice, but it also requires paying attention to the formalities for setting up the business, which can avoid wear and tear and problems in the future.

And what is the first step for anyone thinking about setting up a startup?

The constitution of a legal entity in the initial phase of a startup may not be the recommended route, given the cost involved and the limited financial resources for entrepreneurs, in addition to, of course, a scenario that may be full of uncertainty, whether regarding the viability or possibility of real growth of the business.

It is common to startup use the MVP method (minimum viable product, translation of minimum viable product) to validate your product on the market, it is time to feedback, testing hypotheses, evaluating customer receptivity and how the competition behaves.

Only with the end of the MVP phase and the learning generated by it will the entrepreneur be able to precisely define the final product that will be offered to the market.

Therefore, the alternative at this stage of a startup is the celebration of memorandum of understanding.

And what is the memorandum of understanding (MOU)?  

It is a preliminary contract, which aims to regulate the relationship between players of the business, define the company's purpose of activity, and also, which could serve as an instrument for the future corporate constitution, providing for the rights and obligations of the parties, with clauses on:

At this time, the founders will also be able to establish the duration of the memorandum and when the company will be incorporated, which may be linked to a future event or pre-determined date, for example. Furthermore, the MOU may also bring important rules that raise concerns at the beginning of a startup and mainly in the MVP phase, such as information confidentiality and the issue of intellectual property.

It should be clarified that there is no specific regulation regarding the format and topics that make up the memorandum of understanding, there are many possibilities. It is only important to highlight that it is a contract, and therefore, legal requirements must be respected, such as capable parties, lawful, possible, determined or determinable object.

The memorandum constitutes the pre-incorporation phase of the company and guarantees legal security, not only for entrepreneurs but also for investors, as it demonstrates concern for the economic and sustainable growth of the business.

However, it is necessary to be careful, as with the validation of the product after the MVP phase and as the company grows, startup This model may no longer meet needs and it will be necessary to review the business organization.

And what's the next step? Choosing the corporate type.

Although the incorporation of a company is not essential for the beginning of the development of a business, this is an almost inevitable and indispensable step as a company grows. startup, should not be seen simply as something bureaucratic and onerous, as there are a series of advantages at this stage: 

And it is at this moment that many entrepreneurs have doubts as to which is the best alternative, whether a limited company or a public limited company. And what is the best choice? The answer is it depends.

The choice of corporate type will vary for each business, there is no standard answer. The company's current scenario and short to medium term growth possibilities must be analyzed. Choosing the appropriate corporate model also greatly impacts the risk that the partners assume with the venture. 

Of course, nothing prevents the corporate type from adapting to the best convenience as the company grows, it is recommended, but choosing the appropriate type at each stage can avoid setbacks such as the delay of an investment and the growth of the business, as the Changing the corporate model can require time to resolve bureaucratic issues, which can be highly costly in the technology sector, which transforms at high speed.

And what are theWhat are the differences between a Limited Company and a Public Limited Company?

 We brought some information that may clarify doubts:

It is easy to notice that the limited liability company and the anonymous company have very different characteristics, while the first is marked by a personal relationship between the partners, the second is directly linked to capital and the market, so great care is needed when analyzing the moment where the company is located and its particularities, before choosing the corporate model.

It is also worth remembering that at any stage of a company, the organizational model and its rules will be the logical consequence of the founders' expectations in relation to the venture, therefore, investing time in this alignment is essential so that the rules are clear and there is no problems when conflicts arise or when the opportunity for rapid business escalation arises.

The best way is to look for a specialist lawyer who can advise on the model that best suits the needs of the company and entrepreneurs.

By Vanessa Naunapper