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Startups: legal and practical aspects. Introduction

Denis Zbanatskyy
enterprise director, lawyer


Nowadays, most likely, many entrepreneurs and managers have heard term "startup". However, there are those who did not even care what it is. While it is clear that many have seen samples of world’s startups. After all, these are examples of such well-known projects as Wikipedia, Instagram or YouTube. And this is just the top of the world’s "iceberg" with the strange name "startup".

That is why today the journal "Independent Auditor" starts a new series of articles. Generalized name for storyline is "Startups: legal and practical aspects".

In articles of this series we want our readers to understand as clear as possible, what is "startup". We had planned to tell you about norms of Ukrainian legislation regulating legal relations in field of fast-growing and innovative projects. We will also gradually introduce our readers to projects that in a short period have already achieved significant successes and have quite a good profits growth. One of the important topics covered in article series, will be the topic of investing relevance in high-growth projects.

It should be noted that place of successful startups is rather high and honorable in global economy. Thus, venture capital funds and "business incubators" are actively created in markets of Europe, USA, Japan, Russia and even Belarus, their aim is namely funding and supporting bold projects to capitalize on revenue. And Ukraine is no exception. All is because this topic is extremely relevant to our country.

Today's article will be the opening. Its purpose is to explain concept of "startup" and highlight those rules of law in Ukraine, which currently regulate activities in this field.

Because, first of all, lets define what is meant by "startup".

It's important

There is no term "startup" in legislation of Ukraine

Startup company or start-up is company or project that has a short history of activities aimed to bring profit. Most often, startups are completely new projects and even those which stay only in development stage.

One of startup types are high-tech startups. High-tech startups (high technology, hi-tech) are those startups that are used for profit or to develop new and advanced technologies for today.

Most often, startups are Internet projects and IT-projects. However, reader should be aware that startup can be a fast-moving project in any of existing industries. For example, activity for sale cleaned water, and high-tech business aimed at generating energy from alternative sources equally can be called startup.

For the record

Startups can be fast-growing project in any of existing industries

At the beginning of this article we mentioned Wikipedia, Instagram and YouTube. However, these projects are famous Internet startups. An excellent example of startup out of Internet (offline startup) is an Israeli startup Emefcy. The company has developed and is implementing technology that allows cheaply and safely clean wastewater with bacteria. And it is just one example of many off-line projects that can responsibly be called "startup".

Thus, hallmark of startup is novelty of business model. Main feature for startup is presence of ability to be scalable for this business model, that is - to be replicated and extended. The last statement is based on opinion of Steve Blank - one of the most famous methodologists for startups, successful entrepreneur and innovator, creator of consumer's development concept and profile book author “The Startup Owner's Manual”.

In our edition we will focus on existing opportunities, implementation and legal features of startups in Ukraine.

First of all, you need to define legal framework for possibility of innovation.

Legal basis for doing startup business and investment activities in Ukraine are the following legislation:

1. The Law of Ukraine "On investment activity" from 18.09.1991 № 1560-XII

The Act sets out general legal, economic and social conditions of investment activity on territory of Ukraine. It aims to ensure equal protection of rights, interests and property of investor, regardless of ownership, as well as effective investment in economy of Ukraine, international economic cooperation and integration.

2. Law of Ukraine "On Foreign Investment" from 19.03.1996 № 93/96-VR

The Act defines features of the foreign investment regime in Ukraine, based on objectives, principles and provisions of legislation in Ukraine.

3. The Law of Ukraine "On innovation activity" from 04.07.2002 № 40-IV

This Act defines legal, economic and organizational basis for state regulation of innovative activity in Ukraine, establishes forms of government incentives for innovation and aims to support the Ukrainian economy development through innovation.

4. The Law of Ukraine "On science parks" from 25.06.2009 № 1563-VI

This law regulates legal, economic, organizational relationships associated with creation and operation of science parks, and aims to intensify processes of development, implementation, production of innovative products and innovative production in domestic and foreign markets.

Due to the fact that most of owners of startups have a "know-how", and various inventions, proprietary technology, product samples, and even science and art, as well as ownership on trademarks for goods and services, those acts that govern relevant social relations should be added in mentioned list of regulations, such as:

- Law of Ukraine "On Copyright and Related Rights" from 23.12.1993 № 3792-XII;

- Law of Ukraine "On Protection of Rights on Inventions and Utility Models" from 15.12.1993 № 3687-XII;

- Law of Ukraine "On Protection of Rights on Marks for Goods and Services" from 15.12.1993 № 3689-XII.

You should not overlook the Law of Ukraine "On Protection of Personal Data" from 01.06.2010 № 2297-VI. After all, with its adoption majority of commercial companies and entrepreneurs have one more challenge from state -protection of personal data. Due to the fact that startups are legal business entity, law plays a role in their activities.

Also, according to direction of startup activity (commerce, energy, information technology), in subsequent articles, aimed to study legal and practical aspects of specific lines of business, we will highlight particular regulations that govern certain areas of activity, and consider them in detail.

It's important

Startup, as a kind of companies with high turnover of capital, will become new targets for investment

Thus, startup will gain popularity and practical importance for individual entrepreneurs in Ukraine in the near future, as well as for Ukraine's economy as a whole. This is due to the fact that investor (including Ukrainian) is constantly looking for new business opportunities for profitable investment for purpose of growth and diversification. And startups namely, as a kind of companies with high turnover of capital, will become new targets for investment.

Author - Denis Zbanatsky, company director, lawyer

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