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Watch these proposed laws! They will affect your startup

The younger your company, the easier it can be to adapt to new laws. It’s a fact that the business environment makes a huge difference to whether or not entrepreneurs succeed. Here in South Africa a number of proposals, also known as bills, are being discussed by government for passing by the National Parliament and final approval by President Jacob Zuma.

It’s best to foresee what these proposed laws will require – and what you can do to secure your business against their effects.

Here are three you should watch before making your next move.

IP Act: The act, which has now passed, effectively makes it very risky for a start-up to develop itself through any source of public funds as it could mean losing control over its intellectual property. As this also applies to universities, where many great ideas evolve, the act could end the ability to raise funding.

Investors have a very legitimate concern about investing in a business where the ownership of the IP may in any way be questioned, according to veteran entrepreneur, Rob Stokes. The implications of the act mean selling your startup in future, or at the very least raising equity, is made significantly more difficult, if not impossible. No one invests in what the state my take away. My advice would be to start now and keep your IP development away from state resources One possible solution is to develop as much of your IP at home or off campus, independent of tax-payer funded institutions.

Attorney JoAnn Spoor, in her discussion with the Silicon Cape initiative, recently confirmed that the act applies to any creation of the mind that is capable of being protected by any law from use by any other person: “The IP Act views the funding recipient as the owner of the IP; it also provides for co-ownership in cases where there are partnerships between private and public entities. In these situations, certain requirements must be met, including benefit sharing provisions for the inventors and that a commercialisation plan must be in place. Private entities will retain full ownership of IP if they have provided research funding on a full-cost basis.”

The lesson: Steer clear of using state resources in the process of actually developing your company’s IP.

Labour Act: A successful startup is built on a great team, so the new labour regulations could have the opposite effect of increasing the overall efficiency of your startup. If there is one thing you need to focus on, it is this: Make sure you hire people you can trust.

Another clause in the proposed legislation going through Parliament is the establishment of a state employment agency to which every private-sector job vacancy and every new hire has to be reported. According to economist Jasson Urbach, “if businesses fail to notify the public employment services agency of any vacancy or new position they will be slapped with a minimum fine of R10 000”.

If successfully passed, the proposal will have the effect of bureaucratising the process of taking on new team members and drastically slowing the ability of fast-moving startups from setting up or expanding.

The solution: As much as is possible, take on partners working with your company as opposed to employees. If your mate has a web company and you want a great site, partner with him, don’t employ.

Finally, The Basic Conditions of Employment Bill proposes that the Minister be given the power to prescribe representative thresholds of a trade union and to have the organisational rights of access to employers’ premises. In other words unions will be able to enter your company in order to recruit members. If that sounds radical, it also proposes giving the Minister the power to set minimum increases of remuneration in addition to setting minimum rates of remuneration.

Ensure you have team members whose first commitment is to the company – and whose interests are tied to its success. While the inherent right of every employee is indisputable, the legislation could pose severe problems for an employer if that employee decides to put you through hell, should the legislation pass.

  • Brett

    If the proposed labour changes come about, I’ll be more inspired than ever to start my company off-shore? Small business do not need these restrictions – guaranteed to squash new business drive with red tape and bureaucracy !

  • Hi Garreth,

    It is incredible with job shortages that the small entrepreneur will get penalized, and the large corporates will turn a blind eye and get away with it. The laws within laws is becoming crazy!

    Thanks for a good article.


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