Legal Issues in Start up Funding in Bangladesh
Usually to start up a business a seed funding is necessary at the initial phase of the business from an external investor. Thus, getting funds in a startup business is one of the most challenging and difficult phases. There are many ways of financing at different stages of a startup. There are several government initiatives for funding for small and medium enterprises in the country. Among those, Innovation Fund of Access to Information Programme, Prime Minister’s Office, ICT Division, Bangladesh Bank Equity and Entrepreneurship Fund (EEF) is to be highlighted also there are other sources which provide funds for startup. Therefore, it is important to sort out places to get the fund. In Bangladesh, there are four sources of getting seed funds.
Firstly, venture capital is one of the reliable sources of getting funds and there has a group of people who invests in the business whom they found promising. Along with providing funds they advise and monitor the business. In return for providing funds, they will ask for a piece of ownership of the startup. Some venture capitals in Bangladesh include Bangladesh Venture Capital, BD Venture Ltd., etc. on the other hand, structured Social Businesses can look for startup funding from Grameen Telecom Trust Social Business Fund.
Secondly, Similar to venture capital Angel Investors are the second source of seed funding. Whereas venture capital run by a group of persons, angel investors are run by an individual, and the person provides fun for a startup. For example, if any person has a business idea but he cannot materialize it for lack of funds the angel investors can be a better option for that person. Whereas the venture capital requires a startup to be in operation as their pre-condition of funding the angel investors does not require so rather if they find any innovative idea, they provide the fund for a startup.
Thirdly, Incubators or Accelerators these are organizations that help to helps to growth of the startup through providing mentorship along resources if needed. It is to be mentioned that by applying to such incubators the person can get an access to potential investors as well as mentorship and other resources. These programmes in Bangladesh holds by GP Accelerator, Banglalink IT Incubator, Toru Institute of Inclusive Innovation and Startup Bangladesh.
Fourthly, generally in Bangladesh, the financial system is a bank-based system. Thus, banks are the single and most important sources for both short-term and long-term funds for entrepreneurs. However, banks usually provide funds to known and proven clients and for security ask for guarantees from the directors or others along considers the part performance to assess the creditworthiness.
Last funding for a startup can be said the crowdfunding and most of the crowdfunding websites allow individuals or companies to present an idea to others and therefore who wants can donate money with no expectation of anything in return. It is to be mentioned that most creative types of ideas are given the approval to present on the site to others.
The starting of a business and collecting funds seems easy but not as seen because one of the biggest mistakes made by new business owners is not engaging any startup legal services to handle possible issues for their new business or venture. Starting an enterprise need not only marketing and creativity rather also need to eliminate the legal risk as at every aspect of continuing a business there must need to follow the laws and regulations for smooth running.
There have some legal issues which every person faces during startup and collection of funds-
Incorrect Legal Structure, the investors always want or funds to the persons who are competent and dependable entity but sometimes due to incorrect structure though have an innovative idea the people get rejection. Therefore, it would be wise to consult a legal person or advisor for the correct structure as according to the law also correct format can help save taxes along protect the personal assets of the proprietors in times of crisis.
Not Having Proper Licenses, not compelling with the regulation may sometimes ineffective the business or license for continuing business. Therefore, the startup business owners must engage experts to know about all the legal permissions they need to possess in order to run their organization.
Intellectual property is the most common issue which faces by the person who wants to start up his business and wants to collect funds. It is to be mentioned that intellectual property means that has no substance but which have value. The most common types of intellectual property are patents, copyrights, and trademarks/service marks which can be even ideas also. As we know at the time of collecting funds the person needs to explain all ideas along have to share his trademarks or others to convince investors, on the other hand at crowdfunding the person needs to share at public websites which is a great risk of stealing if not register the trademark and others. If the trademark or others are registered according to law the Person can sue for copyright infringement.
Patents, this is like a new idea of a particular person and as in crowdfunding or venture capital the idea or invention has to share with group of persons or public, therefore the patent needs protection. Therefore, to avoid this legal problem registration is required.
Copyrights and Trademarks/Service Marks, to use images or music or other copyright-protected content, need the copyright or a license to use the content. If the symbol or content is self-made then the copyrights is just before putting it in the public for the fund.
The common legal issues are non-compliance of formalities before startup therefore it is important to find out what type of records and other documents should be generated and maintained along with the laws which apply to the particular business. As the selection of laws varies depending on a range of different factors such as what type of business entity is and other factors.
At the last, it is observed that not only the above-mentioned legal issues faced by any person before startup and funding rather there have many other rules which required to be followed, therefore it is wise to consult with a lawyer or expert for smooth continuity and avoid all legal issues. Also, one thing must be kept in mind that before going for fundraising the person must be prepared with all documents as the investors or banks provide funds only to those whom they seem reliable.