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Changing Your Startup’s Product Midway Through – and How It Could Cause Legal Troubles

If you work for a startup, you know that your target audience’s needs can change on short notice, and so you may need to adapt your product or service to fit the market. You may realize partway through the development process that some of your product’s features are not feasible with your current funding. What you might not think about in the rush to reclaim the market and work within your budget are a few key legal issues.

First, are you familiar with the terms of your agreements with your investors, including venture capital funds? Depending on the sources of funding for your product or service, continued funding and investments may be contingent on the startup achieving the result it planned when it originally sought the money. Investors could see the change in product as an excuse to pull out of funding.

Second, are all the partners or the board of directors of your startup in agreement with the change in product? A change in a company’s mission or product line could raise tensions among partners. Having a solid, legally protective partnership agreement or corporate organizational documents helps alleviate problems when business partners disagree about the startup’s future. For example, partners might agree that a partner who does not want to proceed with developing the new product can be bought out by the other partners.

Third, have you checked that the new product is legally feasible? If the changes to the product result in an item that needs to be approved by a federal, state, or local agency, your business will need to apply for approval, wait out the approval process, and make any changes required by the agency before the product can go to market. Proceeding to market without these approvals could lead to huge legal problems down the road.

Aside from regulations, does the product run afoul of any existing patents, copyrights, trademarks, or license agreements? To avoid suits by the holders of these intellectual property rights, you will want to verify this. The business may need to negotiate license rights and royalties for use of copyrighted material or other intellectual property. This can cost a fast-moving startup a lot of time.

If you are changing your business’s product or service, save your business from legal trouble by seeking experienced advice tailored to the startup business model. Knowledgeable about startup issues, Michael Leonard, Esq. of San Diego Corporate Law, can help. To schedule a consultation, e-mail San Diego Corporate Law or call Mr. Leonard at (858) 483-9200.

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