Legal Basics for Startups in Colombia: What You Need Before Scaling

## The legal foundation before scaling

Many Colombian startups scale without having the basic legal groundwork in order, which creates costly problems when it's time to raise investment, hire key talent, or sell the company.

Here's the checklist to work through from the start.

1. The right corporate structure

The SAS (Simplified Stock Corporation) is the best option for almost every startup: - Fast formation (in some cases, a single day) - Total flexibility in the bylaws - Limited liability for shareholders - Shares with different features (common, preferred) - Makes it easier to bring in investors

Avoid an SAS with just 1 or 2 shareholders and no shareholders' agreement — the lack of internal rules leads to conflict.

2. Shareholders' agreement (SHA)

Even if the founders are friends or family, they need a shareholders' agreement governing:

• Vesting: founders' shares are earned gradually (a 1-year cliff plus monthly vesting over 3 years is standard). If a founder leaves early, the company can buy back the unvested shares.
• Drag-along: if 70% of shareholders agree to sell, they can force the remaining 30% to sell under the same terms
• Tag-along: if a founder sells their stake, the others can join the sale under the same terms
• ROFR (Right of First Refusal): shareholders have priority to buy before shares are sold to a third party
• Conflict resolution: what happens if the founders can't agree on a critical decision

3. Founders' and employees' intellectual property

One of the most common mistakes: founders develop the software, brand, or know-how before incorporating the company, and that intellectual property stays in their personal name, not the company's.

Solution: - Founders must formally assign the rights to pre-existing intellectual property to the company - Employment contracts with technical staff should include a clause automatically assigning inventions and software developed during employment - Register your trademark from the start (see our trademark registration guide)

4. Employee Stock Option Plans (ESOP)

To attract and retain key talent without paying market-rate salaries, startups issue stock options. In Colombia, ESOPs can be structured as: - Promises to purchase shares at a preferential price - Retention bonuses tied to the company's value

Colombia has no specific ESOP rules — they must be carefully structured contractually to avoid tax problems.

5. Data protection from day one

If your product or service collects data from Colombian users, you must comply with Law 1581: - A privacy notice on your site and app - A data-processing policy - Registering the database with the SIC - A mechanism for handling data-subject requests

6. Getting ready for investment

When you reach an investment round, the investor will run a thorough due diligence process. Have in order: - Properly signed employment contracts - Intellectual property held by the company (not the founders) - Bylaws that allow new shareholders to come in with preferred shares - Tax and social-security compliance up to date

Legal problems uncovered during due diligence can lower the valuation or kill the investment.

7. Tax incentives for startups

The Orange Economy Law (Law 1834 of 2017) and the Entrepreneurship Law (Law 2069 of 2020) offer incentives for startups in creative and technology industries: - Income tax exemption for 7 years - Benefits for venture capital funds - Simplified incorporation for businesses

Are you founding a startup, or already scaling and want to get the legal basics in order? We can run a diagnosis and guide you through structuring it correctly.

El asistente jurídico digital de Jurídiconline analiza tu situación específica. La revisión inicial es gratuita.