Anticipating to reflect: the importance of contracts in the startup world

The rapidly pulsating world of start-ups is a place where dreams can come true, where innovative streams of thought burst forth unstoppably, and where the vision of breakthrough success fuels the collective imagination. It is an arena characterized by passion, inventiveness and the pursuit of disruptive solutions. This world has a magnetic appeal that tempts many young entrepreneurs to put all their eggs in one basket and embark on an exciting adventure. However, this venture into the unknown also entails risks, especially if important legal aspects are neglected.

The focus on innovation and creativity should never overshadow the importance of the legal foundations that protect any startup company. For joint undertakings such as software development, idea exchange or prototype development, a formal contract is essential. Such a contract not only provides a clear framework for collaboration, but also serves as a secure shield that preserves your innovations, relationships, and investments.

Some may consider it “uncool” to focus on legal issues, especially when the spark of innovation shines so brightly. It can seem easy for legal details to slow the pace or dampen creative energy. However, it is critical to understand that these legal foundations should not be viewed as obstacles, but rather as the foundation for sustainable success.

My recent experience underscores the dangers that can arise when this crucial step is omitted. Instead of smooth cooperation, the result can be costly and time-consuming litigation. A dispute that not only wastes resources, but also poisons the corporate climate and clouds the original vision.

That’s why it’s essential to take the necessary steps and sign a formal contract before launching. While it may seem “uncool” to consider the legal aspects, it is essential to the success and longevity of any business. A well-crafted contract provides the necessary protection and helps maintain focus on the real goal, the next “big thing.”

The law and its role

In the legal world, a contract is not just a simple piece of paper; it is a legally binding agreement that defines a carefully constructed matrix of rights and obligations between the parties involved. Such agreements are essential to prevent possible misunderstandings and to provide clarity about who is responsible for what and what rights each party has. A contract acts as a kind of roadmap that charts the course of the entire business relationship.

In a typical startup scenario, a contract can cover a wide range of topics, including intellectual property protection rights, profit distribution, the roles and responsibilities of founders, how to handle patented or copyrighted ideas, and more. And here it does not matter whether it is a civil law partnership (GbR), a cooperation agreement, an agreement on the use of resources in the future or any other form of contractual relationship.

The main message is: a formal, legally binding agreement is necessary in any case. Without such a document, founders could find themselves in a maze of litigation over copyrights, trademarks, domains and more, as the example at the beginning of this article makes clear.

In the dynamic world of startups, it’s understandable that people want to focus on the immediate goal and tend to view formal contracts as obstacles. But simply trusting that everything will work out can be a risky strategy. Without a firm legal framework provided by a properly drafted and thoughtful contract, what started as a high-potential joint endeavor can quickly turn into a problematic, energy- and resource-intensive legal battle. Therefore, it is always advisable to have a clear contract from the beginning to avoid possible future disputes.

Caution is better than indulgence

Implementing a formal contract before diving into the creative exchange of ideas or working together on projects like software development or prototyping accomplishes several essential tasks. First of all, it protects intellectual property and copyrighted ideas by clearly regulating their use and ownership. It provides clarity on the roles and responsibilities of each party and ensures that all parties understand the profit and loss sharing structure. It also provides guidelines and procedures that can minimize or even avoid disputes.

This is not just a matter of merely knowing one’s rights and obligations as a founder. The real core lies in the importance of making clear agreements before you even begin to share ideas or work together. It is essential to clarify in advance what will happen to the ideas and content developed in the event of non-establishment or separation. This clarity is particularly important because a commitment to form a corporation is only possible with notarization, and serious problems can arise if one party refuses.

These wise precautions do not require legal expertise, but rather common sense and responsible action. It is prudent and farsighted not to create and share works, content or ideas without being sure how they might be used in the future. This careful approach is not about distrust, but about protecting one’s work and the effort invested. It’s recognizing that in the dynamic world of startups, the unexpected can happen, and it’s smart to be prepared for it.

Conclusion: The certainty of contracts

In the dynamic and often chaotic environment of a startup, it may be tempting to bypass formal contracts to save time and resources. But as experience shows, this approach can cost founders dearly. Implementing a solid legal framework through formal contracts is an investment that pays off by providing certainty, minimizing disputes, and creating a stable foundation for mutual success.

Anyone involved in launching a startup should consider the legal basics as important as developing business strategies or finding investors. The “uncool” world of contracts is actually an essential tool that protects your innovations, relationships, and ultimately your investments. In the complex landscape of startups, it’s important to remember the old adage that “forewarned is forearmed.” A carefully drafted contract is one such precaution that will protect your startup from many potential pitfalls. It is therefore always advisable to seek legal advice and conclude a formal contract before starting a joint project. It may not be the most exciting task, but it is certainly one of the most important.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.