7 common mistakes startups make – how to avoid them

Starting a business is an inspiring journey but also contains many risks, in which legal mistakes are the "Achilles heel" that can hinder the success of young businesses. GT Law will help you identify the 7 most common legal mistakes that startups in Vietnam often make, and share ways to avoid them to start a business legally, firmly establish a foundation, and achieve sustainable growth.

Not choosing the right type of business

Choosing a business model is the first strategic step. Startups often choose based on emotions or trends without considering industry characteristics, capital scale, and development needs. Choosing the wrong model will lead to barriers in operations, capital raising, and decentralization.

Solution:

• Carefully research the strengths/weaknesses of each type (LLC, joint stock, partnership, private enterprise).
• Please consult a lawyer before deciding to ensure the model is suitable for your goals and development roadmap.

Unclear founding agreement

Many founding groups only verbally agree on the division of shares and capital contribution ratios without making a contract or charter in writing. This can easily lead to internal conflicts and disputes as the company develops, even “losing both the lead and the net”.

Solution:

• Establish clear founding agreements and shareholder contracts from the start.
• The document needs to clearly stipulate rights, obligations, withdrawal mechanisms, capital transfer, and dispute resolution.

Accounting and tax books are not in sync.

Startups easily overlook tax declarations and basic accounting books. Errors can lead to fines, tax arrears, or damage to legal reputation and loss of trust from investors and customers.

Solution:

• Use professional accounting services or qualified personnel.
• Fulfill tax obligations correctly and fully; declare transparently and keep records in accordance with regulations.

Poor intellectual property registration & protection

Many startups do not care about registering copyrights, patents, and trademarks. Consequences: competitors copying products, trademark disputes, or being sued for infringing on other people's IP rights.

Solution:

• Proactively research and register for intellectual property protection right from the time of product/service launch.
• Monitor and update intellectual property regulations to protect intangible assets in the long term.

Loose labor contracts and personnel agreements

Oral contracts and lack of written commitments on rights and obligations between the company and employees are common mistakes. They lead to disputes over salary, confidentiality, and responsibilities after leaving the job.

Solution:

• Draft employment contracts, confidentiality agreements, and unified, clear service contracts for each personnel position.
• Fully perform obligations on social insurance and employee benefits according to the law.

Managing weak business contracts & partners

Startups often use standard contracts, drafted by themselves without legal knowledge. Many agreements lack provisions on validity, sanctions, confidentiality, force majeure, and dispute resolution.

Solution:

• Always review the contract with a lawyer, add provisions on deadlines, resolve violations, and keep information confidential.
• Provide contract knowledge training to key personnel or develop internal legal procedures.

Taking personal data protection & cybersecurity regulations lightly

In the context of increasingly strict data protection laws, many startups do not have a customer data management process, do not invest in security and comply with legal regulations.

Solution:

• Issue data management policies, train staff on privacy and cybersecurity.
• Learn and update new regulations on personal data protection, be ready to respond to information security incidents.

What should startups pay attention to in order to start a business legally?

• Build a solid legal foundation: Invest in legal matters from the beginning as a “shield” to protect your business, instead of waiting until the consequences appear to be resolved.
• Professional legal advice: Don't be afraid to ask for advice from day one.
• Actively update policies and legal documents: Always proactively learn and update the latest changes in laws related to the field of operation.
• Establish internal legal procedures: Prepare procedures and compliance guidelines for all key employees.
• Take advantage of state support policies: The 2017 Law on Support for SMEs currently has many practical policies specifically for innovative startups (IP consulting, product development, networking, research commercialization).

=> Entering the startup playground, understanding and controlling legal risks is an indispensable foundation for every successful startup. Investing in legal matters early is the only way to help you "start a business legally", firmly on the journey to build a lasting, professional business, reputable enough to attract partners, investors and break through in the market.