If you’re asking yourself ‘what is legal compliance’ you’ve probably reached an inflection point in your business that risk is keeping you up at night. This is particularly an issue for startup companies who often kickoff business operations with little to know legal guidance. Running a lean ship is a great way to get started but it can also mean that you run the risk of tripping over some legal issues which can derail your business.
So, What Is Legal Compliance?
Legal compliance refers to the practice of adhering to all relevant laws, regulations, and rules that govern an individual, organization, or industry. It is the process of ensuring that one’s activities, policies, and procedures align with the established legal framework and standards. Legal compliance is essential for various reasons, including maintaining ethical business practices, upholding the rights and safety of individuals, and avoiding legal consequences such as fines, penalties, or legal action.
Organizations, in particular, must diligently monitor and adapt to the evolving legal landscape to mitigate risks and ensure that their operations are in accordance with the law. Non-compliance can result in reputational damage, financial losses, and even the suspension of business activities. Legal compliance is a cornerstone of responsible and ethical conduct in both business and personal matters.
Why Is Legal Compliance Difficult For Startup Companies?
Legal compliance can be particularly challenging for startup companies for several reasons, which include:
- Lack of Legal Resources: Startup companies often operate with limited resources, striving to run a lean business. You’re kicking off with essentially a product and engineering team to start. Many of whom will have little knowledge of legal implications of how your users use your product. Legal expertise can be costly, and at the early stages, startups may not have the financial means to retain in-house legal counsel or hire external legal firms. This lack of legal resources can make it difficult for them to navigate complex legal requirements and compliance issues effectively.
- Rapidly Changing Landscape: The legal landscape, especially in areas like data privacy, is continuously evolving. Startups often lack the infrastructure and dedicated personnel to stay updated on the latest legal changes and adapt their practices accordingly. I mean, let’s be honest, how many startups have a qualified data protection officer? This rapid evolution can lead to compliance gaps, as startups may inadvertently fall behind or miss crucial updates, exposing them to potential legal risks.
- Product-Specific Legal Knowledge: Startups typically operate in highly specialized and innovative fields. This means they often need product-specific legal knowledge to address unique regulatory and compliance challenges. For instance, a SaaS startup may face specific data privacy and security requirements that require in-depth knowledge of the technology and industry. This is particularly true for businesses that operation in fields with sensitive data – think Fintech or Insurance Tech. As the product evolves and pivots, aligning sales contracts with these constantly changing products can be a complex and time-consuming task, especially when legal resources are limited.
How Can Startups Tackle Legal Compliance?
To overcome these challenges, startups can take several measures. They can consider seeking pro bono legal advice from organizations or law schools to address initial legal needs. Engaging with legal consultants on a project-by-project basis can also be a cost-effective solution. Additionally, utilizing technology and automated tools to manage and track compliance requirements and changes can help streamline the process and reduce the burden on a limited legal team or resources. Regular training and education of the team regarding compliance issues, especially in areas like data privacy, are crucial to ensure everyone understands and contributes to the company’s compliance efforts. Here are our top tips for tackling compliance:
- Have an experienced SaaS lawyer draft your legal templates
- Understand the ramifications of what you can and cannot negotiate in your sales contracts
- Constantly communicate product updates to whoever is managing your legal terms and conditions to identify when these need to be updated
- Tracking, tracking, tracking – use a tool like Contract Sent to track what you have agreed to in each of your sales contracts
If you’re able to stay on track with each of these to do’s you’ll be well on your way to staying compliant, or at the very least understanding where risk is starting to appear of non-compliance.
What Startups Shouldn’t Do To Be Legally Compliant
As much as there are a number of things you should do there are a number of things that you shouldn’t do. From our experience negotiating, redlining and closing thousands of B2B SaaS contracts the following are common issues that can creep into your legal operations. Although small at first they tend to grow and become large issues later on.
A Trash Pit Filing System
It sounds funny but without some law and order (pun intended) around the organization of your contract versions and signed contracts your contract storage solution, whether it be G-Drive or Sharepoint, will become a flaming trash can. You won’t be able to find anything or track down which version of your contract is the signed one.
The solution to this is either to use a contract naming convention or a contract management tool like Contract Sent to manage your versions.
Treating Legal As A Silo
A lot of startups treat legal as a frustrating part of doing business. They are the last hurdle to jump over before getting a customer to sign. Making the conscious decision to include legal across the board so that they are able to keep updated and advice on product updates and marketing updates can allow you to stop issues arising beforehand. One thing to be very aware of is the need for your legal team to be hyper aware of the speed at which a startup moves and the risk profile that your company has.
Let Data Get Trapped In Contracts
One of the core issues that cause trouble for compliance is just understanding what is actually in your contracts. A lot of startups don’t invest time into a proper deal desk function meaning that once a contract is signed the data is trapped in the long form PDF. This means every time you want to reference data in a contract you need to go back to reading the whole thing. Contract Sent has been built specifically to pull out this data from your contracts and present it in a easy to digest way.
Redline What Matters
Raise Changes For Approval To Turnaround Contracts Faster
Beyond Compliance – Resources To Help
For a Software as a Service (SaaS) startup, accessing reliable legal resources is essential to navigate complex legal issues and ensure compliance. Here are some useful legal resources that can be valuable for SaaS startups:
- Online Legal Services: Online legal service providers like LegalZoom and Rocket Lawyer offer templates and documents for startups to create basic legal agreements, such as privacy policies, terms of service, and employment contracts. While these resources can be cost-effective, it’s important to consult with an attorney to ensure that these documents are tailored to your specific needs.
- Industry Associations: Many SaaS startups benefit from joining industry-specific associations and organizations. These groups often provide resources, guidelines, and legal advice tailored to the needs of the SaaS sector.
- Government Websites: Government websites, such as the Small Business Administration (SBA) in the United States, offer information on legal requirements, permits, and regulations that apply to businesses.
- Legal Tech Tools: Various legal tech tools can help automate contract management and compliance tracking. Tools like Contract Management Software, CLM (Contract Lifecycle Management) platforms, and e-signature solutions can streamline legal processes for startups.
- Online Legal Communities and Forums: Online communities, such as Avvo, Legal Stack Exchange, or Reddit’s r/legaladvice, can be valuable sources of information and can help startups connect with legal professionals and experts who offer insights on common legal issues.
- Incubators and Accelerators: Many startup incubators and accelerators provide access to legal resources and mentorship. They often have partnerships with law firms that offer free or discounted legal services to startups in their programs.
- Educational Courses and Workshops: Participating in legal courses, workshops, or webinars on topics relevant to your business, such as data privacy or intellectual property, can enhance your understanding of legal issues and compliance requirements.
- Books and Legal Guides: There are numerous books and guides available on legal topics for startups. Some recommended reads include “The Lean Startup” by Eric Ries, “Legal Guide for Starting & Running a Small Business” by Fred S. Steingold, and “Software Licensing Handbook” by Jeffrey I. Gordon.
- Startup-Focused Law Firms: Some law firms specialize in working with startups and small businesses. These firms often provide cost-effective legal services tailored to the unique needs and constraints of emerging businesses.
Remember that while these resources can be helpful, it’s essential to consult with legal professionals to ensure that your startup is fully compliant with local, state, and federal laws and regulations, especially in areas like data privacy, intellectual property, and contract law. Legal compliance is a critical aspect of your SaaS business’s success and reputation.