Starting a startup is an exciting adventure fueled by passion, big dreams, and the drive to move quickly. But in the rush to get things off the ground, it’s easy for founders to miss important legal, financial, and structural issues that can cause serious problems down the road. Common mistakes, such as skipping formal agreements, misunderstanding regulatory requirements, or neglecting to protect intellectual property, can put both the business and its founders at risk. While not many startups can get everything right from the start, knowing these common challenges early on can save you a lot of headaches and help build a stronger foundation for growth. In this article, we’ll walk through what every startup should keep in mind and point out some common pitfalls to avoid.

1. Misunderstanding of Legal Entity and Regulatory Requirement

Many Thai startups jump into business without setting up the correct legal structure or understanding the particular licenses they need. Some startups start their business without a formal legal entity registration or informal partnerships, thinking they can register a company later. Others think that all it takes to start a business is to incorporate it.

In practice, this approach puts both the business and the founder at serious risk. Without a suitable legal entity, such as a private limited company, there’s no distinction between personal and corporate liabilities. If the business is sued, the founder’s personal assets, such as savings or property, may be exposed.

Even after incorporation, startups must still comply with industry-specific regulations or requirements. Food and beverage, healthcare, banking, real estate, and tourism industries frequently require special licenses or permits from regulatory agencies such as the Thai FDA, the Bank of Thailand, and the Ministry of Public Health. Overlooking these criteria might result in fines, delays, or even the forced liquidation of a corporation.

According to 2021 research statistics, regulatory and legal challenges were a top reason for startup failure globally, with up to 18% of startups unable to recover after encountering legal or compliance issues. For example, in the United States, Carta, a software platform focused on equity management and cap table management for startups and investors, had its business license revoked in Illinois in 2022 for failing to pay franchise tax, a tax imposed on national corporations operating in the state, according to state records reviewed by TechCrunch.

2. Overlooking Non-Compete Obligations in Founders and EmLegal Retainer for SMEs and Start-Up Employment Agreements

When starting a business, many startups overlook the non-compete terms in their own employment contracts. This creates a particularly risky position because the founder's breach can invalidate the entire organization, not just their individual employment.

Non-compete clauses are contractual agreements that restrict employees from working for competitors or starting competing businesses for a specified period after leaving their current employer. In Thailand's increasingly competitive business environment, these clauses are becoming more common and more strictly enforced.

Startups often neglect to include properly tailored non-compete clauses in their own founder agreements, shareholder agreements, or employment contracts. This puts the startup business at risk if a co-founder or key team member later leaves and sets up a competing business using insider knowledge, key client relationships, or trade secrets of their previous business.

Before entering into a Founder Agreement among founders or recruiting new employees under an Employment Agreement, the company should ensure that non-compete clauses are clearly stipulated in such agreements. If there is any uncertainty as to whether a party is bound by restrictive covenants under a prior employment agreement, companies should include representations and warranties that specifically address potential conflicts with existing obligations.

3. Funding Options for Startups

Funding is one of the most typical challenges for startups. A new business often requires funding for product development, hiring employees, marketing, or expanding operations. While some startups bootstrap (using their own funds), others may require external assistance to grow.

Self-Funding (Bootstrapping):

Self-funding, also known as bootstrapping, is the process of starting a business with personal savings. This method avoids giving up equity and offers total management, but it frequently restricts a startup's ability to grow. It is a common tactic used by startups that are starting or growing their companies without external investors.

Loans and Debt Financing:

Startups may seek formal financing arrangements, whether from banks, private lenders, or even the founders themselves. Loans can assist in maintaining 100% ownership, but they must be repaid on time and can restrict cash flow. It’s crucial to have clear legal terms about interest, repayment, and collateral to avoid disputes or liability.

Friends and Family / Angel & Venture Capital Investment:

Some startups may raise funds from their family or friends, but it's still important to properly document the transaction to avoid any misunderstandings among them. Others may seek outside funding from angel investors or venture capitalists (VC) in exchange for stock of their company. These investors can provide strategic support, but founders must be prepared for ownership dilution and more complicated agreements, especially those involving instruments such as SAFE or private placement.

Startup Funding in Thailand:

According to the National Innovation Agency (NIA) of Thailand's 2021 Start-up Guide, the funding process for start-ups normally develops through many stages. During the early stages, when the company is valued between $10,000 and $100,000, most entrepreneurs rely on their personal funds or support from family and friends, raising approximately $50,000 on average. Once valuations reach $3M to $6M, start-ups typically debut their products and begin recruiting angel investors, micro VCs, and even crowdfunding, securing approximately $3 million. As businesses grow in value from $10 million to $30 million, they can raise approximately $15 million in funding from accelerators, super angels, and venture capitalists. Late-stage venture capitalists frequently invest roughly $30 million to help scale enterprises between $30 million and $60 million. Later, during expansion ($100 million-$120 million value), late-stage venture capitalists and private equity companies invest around $50 million to prepare the company for an IPO. Finally, after a start-up hits $100 million in revenue and has strong financial underpinnings, it can raise $50 million to $500 million or more from the general public through an IPO

4. Equity Splits Among Founders

Another common challenge that startups face is a conflict or disagreement over startups that divide their equity among their founding team. This often occurs when friends or colleagues decide to start a business together but fail to have a formal discussion about their ownership in the business.

Many founders often choose a 50/50 share to avoid confrontation or difficult negotiation. The intention to split the shares like this is that each founder will contribute to the growth of the company equally. While this may seem fair at the beginning, splitting the equity equally might cause big challenges for the startup's business in the long run.

The business is especially likely to get stuck in deadlock circumstances if it has a 50/50 ownership structure, where two shareholders each possess half of the issued shares. When no one has a clear majority and there is no way to settle the disagreement, it can become paralyzing.

Even if there are more than two shareholders, deadlocks can still happen if the shareholders' agreement or articles of association have rules like one of the following:

Reserved matters need the consent of minority shareholders or a supermajority vote;

Equal representation on the board or voting rights, stop one party from having the final say;

Voting requirement needs a board of directors or shareholders' unanimous vote to pass; or

Quorum requirement needs certain shareholders or directors to be present for the meeting to proceed.

Moreover, if the shareholders are foreigners holding more than 50% of the shares, the company will be regarded as a foreign company and must comply with the Foreign Business Act B.E. 2542 (1999). In practice, some startups with foreign shareholders often structure their shareholding so that Thai nationals hold 51% and foreigners hold 49%, allowing them to operate without being subject to the Foreign Business Act.

Real Case Example

Antje Danielson and Robin Chase, founder and co-founder of Zipcar, a car-sharing company in U.S. They have agreed on a 50/50 split, but they never set clear expectations about roles and commitment. As the business took off, Chase argued she was working full-time while Danielson hadn’t contributed time as much as Chase. The dispute created growing resentment, and eventually, Chase removed Danielson from the company. Zipcar became a success, but the founders’ conflict highlights the risk of relying on a handshake deal and not having a founder agreement or Shareholders’ Agreement.

5. Failing to Properly Protect Intellectual Property

Mostly, startups are driven by technology, innovation, and creativity. However, many startups fail to effectively protect the idea or concept they have produced. Later on, this can result in issues such as conflicts, stolen work, or missed opportunities.

From the very beginning, startups need to know what kinds of intellectual property (IP) they have, like trademarks, copyrights, patents, or trade secrets, and make sure they have the right legal protections in place to keep those assets safe from being used, copied, or stolen by other people.

Investors will expect to see that the company, not the founders, owns all of the IP employed in the business. However, in a lot of early-stage firms, the intellectual property is first created and owned by the founders or developers themselves. In these situations, the IP must be formally transferred to the corporate entity through the Department of Intellectual Property (DIP) or an assignment agreement that legally transfers ownership rights from the founders to the corporate entity. Founders should also ensure that employment agreements include clear IP assignment clauses that require employees to immediately provide the company with any intellectual property that employees create while working for the company. This helps keep things from getting messy with ex-employees who might try to claim ownership of code, content, product designs, or other new ideas they came up with while working for the company.

Real Case Example

A Belgian entrepreneur set up a local food processing operation company in Indonesia. One of its employees developed an innovation to the existing raw material cleaning process. In the meantime, that employee secretly instructed a patent attorney to apply for a patent in its own name. As soon as the Belgian entrepreneur discovered the patent filing, he asked that employee to transfer the patent application to the company, but such employee refused.

Building a successful startup requires more than just a great idea and entrepreneurial spirit. It demands careful attention to legal foundations, regulatory compliance, and proper structuring from day one. As we've seen through the examples above, even seemingly small oversights can lead to significant consequences that threaten the very existence of a business. Whether you're navigating complex regulatory requirements, structuring founder agreements, protecting your intellectual property, or planning your funding strategy, having experienced legal counsel can make the difference between costly mistakes and sustainable growth. Our legal team specializes in helping startups build solid legal foundations while avoiding these common pitfalls. We understand the unique challenges that emerging businesses face and provide practical, business-focused legal solutions tailored to your startup's specific needs and industry requirements. Don't let preventable legal issues derail your entrepreneurial journey. Contact us to schedule a consultation and discover how the right legal strategy can accelerate your path to success.