We have compiled and answered a collection of the most frequently asked questions in the start-up sector for you. The FAQs provide initial assistance. Should there still be some unanswered questions, don’t hesitate to contact us! We’re happy to advise you!
- IP-strategy (brands, patterns, patents, copyright)
- Company Foundation
- Financing and raising capital
- Operational work
IP-strategy (brands, patterns, patents, copyright)
Copyright protects intellectual creations in the fields of literature, acoustic art, visual art and cinematic art. It protects intellectual property on a non-material and a material scale regarding content, extent, transferability and consequences of a violation of this right over the created work. Only the originator of the work has the right to utilize it, which includes its reproduction, dissemination, leasing, lending and the like. If the exploitation rights are infringed, the originator has the claim to cease and desist the infringement of the copyright, the claim to have the work removed, the claim to appropriate remuneration for the use of the copyrighted work and, under certain circumstances, the claim to compensation.
Brands are characteristics, which identify goods and services of a certain company. Trade marks can consist of any sign which can be depicted graphically, in particular words, including personal names, images, letters, numerals and the shape of goods or of their packaging, in so far as such signs are capable of distinguishing the goods or services of one company from those of another. One can therefor differentiate between word marks, word figurative marks and purely figurative marks. Well-known examples for Austrian brands are Red Bull and Swarovski.
The trademark owner can exclude third parties from using a more recent identical or similar sign for the same or similar goods and services. However, the trademark application and registration do not, in general, change anything in relation to the owners of earlier trademarks or other signs.
A Union trademark enjoys uniform protection in all – currently 27 – member states of the European Union. Its registration is made directly at the European Union Intellectual property office (EUIPO). The European Union trade mark offers a relatively cost-effective EU-wide protection. The biggest disadvantage of a Union trademark is that it can only apply to the whole EU or not at all – if there is an obstacle in even just one country or part of the EU, it prevents registration as a whole and not just for the country where the obstacle exists. In such a case, although there may be the possibility of converting the application into a national one, thus preserving seniority, the costs of filing are lost.
Trademark law research is used to ascertain whether your desired trademark is available. Through telephonic request at the Austrian patent office (Tel. 01/63424) you can find out whether a sign identical to your wanted sign is already registered as a trademark in Austria and if so, for which goods and services. Especially with verbal and mixed verbal and figurative marks the use of an internet search engine of the Austrian patent office or the European Union Intellectual property office can provide first insight into the availability of the desired sign and its usage. Of course, we are also happy to do this research work for you.
However, the usage of the desired sign is only legally harmless if not only no identical, but also no confusingly similar sign is registered as a trademark or otherwise protected (e.g. due to a high degree of recognition). Before you start using the chosen sign, you should therefore, as a precaution, carry out a similarity search to check whether a confusingly similar sign is registered as a trademark. If you entrust us with the trademark application, a first trademark search and the legal evaluation of the search result are already included in our flat fee.
Should you, after the similarity search, decide against the trademark application by us we will charge our services rendered up to that point on an hourly basis, up to a maximum of EUR 500.00 (plus 20% VAT).
During the registration of a brand, the declarer has to state in a goods and services register for which products and services he wants to register his brand. These are categorized in classes after the scheme of the “Nice Classification”. This classification allows a categorisation of goods and services in 45 different subdivisions, so called classes. The classification into classes simplifies a similarity search by taking into account not only the similarity of the signs but also the similarity of the goods and services.
When categorizing the goods and services in the different classes, it is advised to choose the terms used in the Nice Classification. Aside from that, you should only include goods and services into the goods and services register, which you actually plan on using your brand for.
Austrian brands: since 1 July 2014 the cost of a national trademark registration is EUR 372,00 for three goods and service classes; EUR 75,00 for each additional class.
European Union trade mark: For online applications, the application fee is EUR 850.00 for the first class of goods and services, EUR 50.00 for the second, EUR 150.00 for the third and EUR 150.00 for the fourth and each additional class. For registration in paper form, the fee for the first class is EUR 1000,00, every additional class is charged at the same rate as the additional classes in the online registration.
International registration: In the case of an Austrian trademark as a “basic trademark”, trademark office fees of EUR 141.00 are charged for forwarding the application for extension of protection to WIPO in Geneva. For a European Union trade mark as a basic trademark, transfer fees make out EUR 300,00.
In addition, following fees of the WIPO accrue (all WIPO-fees are fees in Swiss franc): basic fee of SFR 653,00 (for coloured mixed verbal and figurative marks and figurative marks SFR 903,00) for an international registration in up to three classes, SFR 100 for every additional class. Should the Madrid System be applicable, there is an additional SFR 100,00 to be paid for every state, in which the trademark registration is sought-after. Should the Madrid Protocol be applicable, a lot of states demand a so called individual fee, which can be different from state to state and can even be considerably higher.
In addition there are the lawyer fees: We charge a flat-rate fee for the registration of a brand, including all rendered services in connection to the support of the registration progress.
Austrian trademark: EUR 850,00 (plus 20% VAT)
Community trademark: EUR 1.150,00 (plus 20% VAT)
International trade marks (registration of an Austrian trademark or a Community trade mark as a basic trademark plus an extension of the protection to up to three countries): EUR 1.350,00 (plus 20% VAT)
If you wish to register your trademark in more than three countries or if you wish to register several trademarks at the same time, we will agree on a flat fee for our services in each individual case.
Should there be conflicts concerning the trademark rights (during or after the registration progress), we will give you a cost summery for the concrete case.
A patent is a property right to an invention which is limited in time and place. However, an invention is only protected by a patent, if it is new and inventive. That means, that at the time of the registration it cannot exist anywhere else, otherwise it would not be new. The protective right on an invention includes an exclusion right, which prohibits everyone else to produce, sell or use the protected invention.
An intellectual property agreement (IP-agreement) is an arrangement for the protection of intellectual property. Intellectual property rights are often important corporate assets, especially for start-up companies. It is therefore very important to determine from the beginning, who is entitled to intellectual property rights and in what form they can be exploited.
When several founders start working on an idea together, a product or software, they jointly create intellectual property. Thereby it is important, that it ultimately stays with the company, even if one of the founders leaves. So-called intellectual property agreements are therefore of enormous interest to (founding) shareholders.
A non-disclosure agreement (NDA) conduces to the disclosure of information towards a potential investor, which should not be made public. The potential investor has a legitimate interest in finding out what the founders of a start-up are working on and what innovative idea is behind it. The founders, however, have a vital interest in keeping their ideas and inventions secret, since, for example, they can only apply for a patent if their invention is new and has not yet become publicly known in any form. Therefor founders of a start-up and potential investors enter into a secrecy agreement, which includes a detailed list of comprehensive secrecy- and non-use-obligations for the potential investor. An NDA requires all parties involved to comprehensive secrecy.
A basic distinction is made between partnerships on the one hand and corporations on the other. Partnerships include open partnership (OG), limited partnership (LP), civil law partnership (GesbR), silent partnership (StG) and the European economic interest grouping (EWIV). The private limited company (Ltd.), joint-stock company (AG), the Societas Europea (SE) and the cooperative society are part of the corporations.
The choice of the legal form is typically accompanied by the following questions: What is the purpose of the company’s activities and what activities do I want to carry out with my company? Who should take on the management of the company, all associates themselves (open partnership, GesBr) or third parties outside the company (Ltd., AG)? How high may the foundation expenses be on the one hand and the current expenses on the other? Do I want to avoid publicity requirements? Do I want a company form that is as simple as possible (GesbR, OG, LP), in which much of the agreement is subject to the shareholders, in order to avoid complex regulations such as with the joint-stock company or the Ltd.? Is a limitation of liability (Ltd.) reasonable due to an increased business risk? Would I like to be able to transfer shares in the company easily (AG) or should the circle of shareholders not be able to change so quickly?
Only by answering these and similar questions it is possible to choose the “right” legal structure.
A partnership under civil law is an association of two or more natural persons who join together with their property or work in order to achieve a common purpose. The common purpose is very diverse and can consist of almost anything, such as the construction of a house together, the handling of larger construction projects (so-called working companies) or the implementation of a business idea. Since there are no formal requirements for the conclusion of a partnership agreement, a civil law partnership is often conclusively materialized through tacit cooperation of at least two people. The mere existence of a business idea does not form a civil law partnership; however, as soon as at least two people start working on their idea, a civil law partnership is formed automatically (by law). A deviation from the legal regulations of the civil law partnership is possible through concrete agreements (Founders’ Agreement).
A Founders’ Agreement is an agreement between the “founders” of a company, which they make before they have established a company with legal personality. Generally speaking, a civil law partnership is formed automatically as soon as two or more founders get together to work on their joint idea or project. The Founders’ Agreement is nothing other than a partnership agreement of this civil law partnership. Here, the founders do not only determine the rules of their future cooperation but also of their divergence. Important cornerstones of a Founder’s Agreement are for example agreements on who participates in the joint venture to what extent, how a founder can leave the company or what happens if one of the founders wishes to sell the company but the other one wants to wait for a better offer.
Especially issues related to intellectual property are often regulated in the Founders’ Agreement. If a number of founders start working together on an idea, a product or a software, they create intellectual property together. There are different kinds of intellectual property, but it is always important that it remains with the company even if one of the founders leaves. Therefor so called intellectual property agreements are of enormous interest for the founding associates.
Partnership: The close connection to its shareholders is very typical for a partnership. The formation of a partnership does not require any minimum capital. As an offset it is usual for all associates to have unlimited liability (as protection for their creditors) with their private assets for debts of “their” company. On this account shareholders often run their business themselves and do not appoint a third party as management and/or as representative of the company. Examples for partnerships are the open partnership (OG), the limited partnership (LP) or the civil law partnership (GesbR).
Corporation: A corporation requires the application of a certain share capital. In contrast to the partnership, the shareholders only have limited liability. Their private assets are strictly separated from the corporate ones. A liability of the shareholders with their private assets is not even necessary, since a certain capital must not only be raised, but it must also be sustained to meet the needs of creditor protection. The company shares of limited companies are usually easier to transfer, than those of partnerships. Corporations include the limited liability company (Ltd.) and the joint-stock company (AG).
The shareholders do not bear liability for debts of “their” company with their private assets. Instead only the Ltd itself is liable with all corporate assets. However, the shareholders are liable for raising the share capital specified in the articles of association. (full paying-up of the initial contribution).
The managing director is the management body of the Ltd. He leads and represents the Ltd., whereby he is subordinated to the general assembly (assembly of all Ltd.-shareholders). Each Ltd. must have at least one managing director. The obligations result from the Ltd.-law on the one hand and the articles of association on the other.
The obligations under the private limited company law include the establishment of an accounting system and an internal control system, the preparation and submission of the annual financial statements, the convening of the general assembly, the duty of loyalty, the duty of confidentiality, the duty to file for insolvency, the duty to act in the best interests of the company and the duty to manage and organise the company operated by the Ltd.
In the event of a violation of the duties of the managing director, the managing director is liable to the company for unlawful, culpable damage (so-called directors and officers liability). The managing director is liable to third parties either on the basis of general tort law or on the basis of special liability norms (so-called external liability). Furthermore the general manager bears liability towards the “general public”, hence towards social security or the federal tax authorities.
Examples for clarification: The general manager divulges business secrets of his Ltd, advises competing enterprises, keeps the accounting rather sloppy and therefor overlooks that the company is already insolvent. Moreover he is not too serious about paying taxes or social security contributions, has no interest in environmental protection and lets all of the toxic waste the company produces being dumped into the Danube. The general manager is liable for all these actions.
The establishment of a Ltd. consists in general of two acts: closing of the articles of association and registration into the Companies Register. The articles of association of a Ltd. must be concluded in the form of a notarial act. Thereby the Ltd. is being established between the contracting parties (shareholders); in the external relationship however, the company is only formed through the registration into the Companies Register.
Before the application for a registration into the Companies Register, it is required to raise the share capital which is determined in the articles of association. The law requires a certain minimum share capital of at least EUR 35.000,00. If the so called founding-privilege is being made use of, this number is reduced to EUR 10.000,00.
The shareholders must at least pay half of the in the articles of association determined share capital into an account which belongs to the company and attach a confirmation to the application for the registration into the Companies Register.
The participation of a new investor in a pre-existing company takes place in the course of a so-called round of financing. In the run-up the investor often sends a letter of intent, in which he expresses his intention to participate financially in the company. Subsequently, the potential investor and the shareholders usually conclude a non-disclosure agreement, which obliges all parties involved to maintain secrecy. In the investor’s interest there is a due diligence review, in which the corporation and the company are legally, economically and technically analysed, examined and valued. Should it – from the investor’s point of view – go well, and the investor ultimately decides to participate in the corporation, the financing round ends with the closing of an investment contract between the investor and the shareholders of the corporation. The investment contract determines the detailed conditions of the participation. Of course it is also possible to have an investor already participate in the establishing of the corporation. The described investment process stays more or less the same.
An investor has three different options of giving capital to a start-up: in the form of equity, mezzanine capital or debt capital. In the first case, the equity investor participates directly as a shareholder in the start-up either by way of a capital increase or an assignment of shares and receives a share in the company in return, which he can generally resell at any time. He has all rights and obligations of a shareholder, like voting rights, profit sharing rights or information rights.
If an investor provides the start-up with capital in form of mezzanine-capital, it usually happens in the form of a silent partnership with the corporation or a subordinated loan. Hereby the investor does not acquire a direct participation in the company and therefor also no shareholder rights. Still, an agreement concerning information rights, interest income and a share in the company value (for example operating results or annual profit) is possible and common.
An investor can also provide a start-up with debt capital in the form of a typical loan. The return service does not consist of granting a shareholder status or at least a shareholder-like position, but of repaying the capital invested plus interest income.
Note: Investing in start-ups must be considered as risk capital, which means that the investor must be able to accept and cope with the total loss when making this investment decision.
Financing and raising capital
If an investor participates directly in a start-up it can either be through a share transfer or capital increase.
The shares in an Ltd. are freely transferable, unless the articles of association state otherwise. In the case of a share transfer, an existing shareholder assigns his or her share or part of it to the investor as a new shareholder. In return the new shareholder has to pay a transfer price. The amount and maturity as well as all other conditions of the transfer are determined in the transfer agreement. The transfer agreement must be established in the form of a notarial act. The newly entering investor enters into the shareholder position of the assigning shareholder as soon as the transfer agreement is effective.
Should an investor enter a start-up in the course of a capital increase, his share does not exist yet – in contrast to the case of a share transfer. The share is instead created through the capital increase. The shareholders decide in a general assembly (assembly of all shareholders), to raise the share capital of the corporation up to a certain amount and simultaneously let the investor assume the established shares. The capital increase and the transfer agreement require a notarial act as well.
Equity consists of nominal capital (share capital), capital reserves, retained earnings and net profit and loss. It can be increased by a capital increase or premium. The equity investor participates in the assets, profit and loss of the company proportionately and acquires co-determination, voting and control rights in the company.
A debt capital investor in contrast to an equity investor does not have shares in the company to which he provides capital. Therefor debt capital is provided by uninvolved third parties, for example a bank, and has to be paid back to this third party at a certain date with a certain rate. The typical example for debt capital is a bank loan.
Mezzanine capital is risk capital made available to the company as an unsecured loan with an option to acquire shares in the company. Mezzanine capital is thus a hybrid between direct equity and secured debt.
A convertible loan is a form of financing in which the lender first grants the company a loan in order to convert it into shares at a predetermined point in time (a so-called “trigger event”), such as a future financing round. A convertible loan is an interest-bearing loan of equity nature.
Business premises are rooms that are agreed to be used for business purposes. The demarcation of business premises and apartments is particularly important with regard to rent formation or termination regulations.
In principle, the rental of business premises falls within the full scope of application of the Mietrechtsgesetz (MRG – Austrian Tenancy Law), unless the tenancy agreement is concluded for a limited period of up to six months or there is a so-called company lease. The MRG is not applicable to these, but the General Civil Code (ABGB). Thus, protections against dismissal or maintenance obligations of the landlord are not applicable to company lease agreements. The decisive factor is not what a contract is called. Rather, in individual cases it must be examined whether the tenancy is subject to the ABGB or the MRG, which is more favourable for the tenant.
Rent is the temporary transfer of an object against payment for use only. Lease however is the temporary transfer of an object against payment for use and usufruct rights. The purpose of the contract at the time of closing is used to determine whether a rental or a lease agreement has been concluded. The typical example of rent is the transfer of an apartment to a tenant for use. Lease is for example the transfer of a restaurant, a café, a pharmacy, a bakery, a medical practice and the like.
First of all, only companies with legal personality, i.e. an OG; LP, Ltd. or AG, can be contract partners and therefor employers. Like every employer, the company must ensure that qualified and fitting employees are hired when selecting workers and contracting companies. The constant departure of employees from the company can be very damaging to its reputation.
Especially start-ups should think about the following when choosing employees: Firstly, personnel costs are generally higher, especially at the beginning, since young entrepreneurs do not yet have professional personnel management and/or sufficient experience in this area. Secondly, it is advisable to retain good employees at the start-up, as their know-how and qualifications are often particularly valuable.
A service contract is a contract in which someone is obliged to provide services for another person for a certain period of time. A service provider is being paid for the service itself; he doesn’t owe a certain achievement, merely the effort. The employer bears the entrepreneurial risk, while the employee is closely involved in the company’s organisational structure. He is not independent regarding his working hours or his workplace. In the case of a service contract, there is a continuing obligation.
A contract employee is obligated to create a “work” by concluding a contract for work and services that represents a target obligation. He therefore owes a result, a success. Thus, the contractor bears the entrepreneurial risk alone. In return, he is flexible in terms of working time, place of work and the use of his resources. He carries out his work under his own responsibility.
General terms and conditions, also known as “the small print“, are pre-formulated contractual conditions intended for a large number of legal transactions. The general terms and conditions are intended to simplify the conclusion of contracts and are used in practice of professional investors when concluding investment contracts. In general, GTCs only take into account the interests of the contracting party that uses them, i.e. in our case the interests of the investor. In order to prevent the other party from being disadvantaged, the General Terms and Conditions are subject to a validity check to ensure that the other party was made aware of them before the contract was concluded and to a content check to ensure that none of the content is surprising or immoral.
The use of general terms and conditions makes sense if the company wishes to conclude many contracts with the same content (e.g. the operator of an online shop).
- What data is collected?
- How long is the data stored?
- Will the data be passed on to third parties?
- Which program is used for sending newsletters?
- Where is the data stored (website, web shop, databases, online books)? (Where is the computer centre located?)
- Which web analytics tools – besides google analytics – do you work with?
- At google analytics, is the “anonymous” module used (this masks the IP address)?
- Which cookies do you process (complete list, including purpose and storage time)?
- Do you use social media plugins?
There are strict European legal regulations, which require a multitude of mandatory declarations and information for the customer, for web shops that (also) address consumers. In accordance with the provisions of European law, Austria has largely implemented the requirements of the EU in the so-called “Fern- und Auswärtsgeschäftegesetz” (FAGG – Law on distance and away business). The FAGG imposes on the operator of a web shop, among other things, the obligation to inform the consumer of the essential characteristics of the goods or services before placing an order. Further legal requirements for a web shop are:
- Withdrawal and revocation instruction
- Installation of general terms and conditions and revocation instruction with the order
- Order transaction and order summary
- confirmation emails
- References to out-of-court settlement of disputes
The advertising of an operator of an online shop is also subject to strict legal regulations. The advertisement must be unmistakably recognisable as one and clearly identify the client of the advertisement, gifts and competitions as such. Last but not least, an appealing website is indispensable. A beautiful design and a logically structured, user-friendly system ultimately decide whether an interested party becomes a buyer.
In an asset deal, the company is transferred in whole or in part to an acquirer through an individual legal succession, for example by purchase or gift. The transition of the company to the purchaser, together with its property and intellectual property legal relationships, does not take place in one act. Instead, several transfer files are required for the individual assets to be transferred. This means that properties belonging to the company are transferred to the legal successor by registration in the land register, intellectual property rights by registration in public registers, claims by assignment and liabilities by assumption of debt.
In the so-called share deal on the other hand, not every part of the company (or parts thereof) is individually transferred to the legal successor in accordance with the applicable regulations, but rather the shareholdings of the company owner, i.e. the corporation which owns the company. This means that the acquirer assumes the shareholder status of the seller and all previous legal relationships remain in place. The opposite applies, however, if the company has entered into so-called “change of control clauses” in contracts with its business partners under which they have an extraordinary right of termination in the event of a change of shareholder.
Pre-emption rights are usually defined in the articles of association or in a participation agreement and can be structured in various ways. However, the core of the pre-emptive rights is always the same: the agreement of pre-emptive rights means that in the event of an intended sale of shares by one shareholder, the other shareholders are entitled to acquire the share for sale with priority (under the same conditions as or at a lower purchase price than the potential buyer). If the shareholders do not or only partially exercise their pre-emptive right, the shareholder willing to sell is entitled to sell the shares to the third party. The purpose of the regulation is that shareholders are often interested in not accepting any new persons as shareholders in the company.
The agreement of co-sale rights entitles shareholders to demand that those shareholders who wish to sell their shares and who have already received a binding purchase offer from a third party also sell their shares. A potential buyer must therefore acquire all the shares in the company on the same terms.
Co-sale obligations as well as pre-emptive rights can already be agreed in the articles of association or in a participation agreement. If one or more shareholders, who alone or jointly hold a certain percentage share, usually 50%, in the company, have a purchase offer for their share(s), the remaining shareholders are obliged to sell their shares together with the shareholder willing to sell them. The other shareholders must sell their shares at the same conditions as the shareholder willing to sell.
It is advisable to regulate such agreements already at the time of incorporation – for example in the articles of association or a participation agreement – but at the latest in the participation agreement within the framework of the first financing round.
The evaluation of start-ups is difficult because traditional evaluation methods do not lead to results that are satisfactory for the participants. The professional opinion of the Expert Panel for business administration and organisation of the Chamber of Public Accountants and Tax Consultants for Company Valuation (KFS/BW1) sets out principles according to which accountants and tax advisors evaluate companies according to objective criteria and is particularly suitable for existing SMEs. The KFS/BW1 describes the following valuation procedures: The discounting method, in which the enterprise value results from the cash value of financial surpluses, which result from the continuation of the enterprise as well as from the sale of non-operating assets, and the multiplier method, in which the enterprise value is determined as the potential market price using certain multipliers.
The KFS/BW1 is expensive, time-consuming and often leads to lower valuations than the shareholders would like. Therefore, in practice it may be useful to use other variables to be evaluated. The turnover multiple valuation is commonly used as a form of the multiplier method, in which the turnover of a company is used as the multiplier.
All valuation methods are only an attempt to depict a company as a complex entity in money. In the end, however, a company is always worth as much as the highest bidder is willing to pay for it.