Start-ups – think before you jump

What legal considerations are there when launching your own business?

Single Cloud In The Sky

Start-ups appear to be everywhere these days.  At one end, you have people leaving employment to go freelance and passionate entrepreneurs working from home or in co-working spaces; at the other, there is the start-up scene of incubators and accelerators, crowdfunding and venture capital, from which founders look to obtain the guidance and finance they need to scale.

The reality is that a majority of start-ups do not succeed.  The reasons range from not being able to raise capital or attract customers or talent, or simply that the product or service does not stand out in the way the founder believes it does.  It won’t be often be a legal issue that causes a start-up to fail, but not getting the legal foundations in place at the outset can be a ticking timebomb of future expenditure.

Consider the legal formalities before launching yourself headfirst into a new business and budget accordingly. By doing so, you can manage the relevant risks and focus on the business itself. Early conversations with an accountant are also essential to decide on structure and cover off all necessary tax registrations.

Choose the right structure

It may be simplest to get started as a sole trader or partnership but this could leave you personally exposed to financial or other risk. A limited company is likely to be the best vehicle to bring in investors whilst limiting your personal liability, but it may involve greater cost and administration. An LLP is another option. Tax advice will be key.

Select a suitable name

A strong brand name may be important, but carry out searches to check no one is already using it. If they are, your company incorporation may be rejected or, worse, you may later find yourself subject to an infringement claim. Also check that any desired domain names and social media handles are available, and register these.

Sign a founder agreement

A shareholder, LLP or partnership agreement is highly recommended to ensure each founder knows what they can, or more importantly cannot, do. Significant points to cover are: whether a departing founder is obliged to offer their share of the business to the others; a list of decisions that need the consent of most or all of the founders; and covenants preventing a founder from setting up a competing business.

Protect your intellectual property

Consider registering your brand name as a trade mark to protect against others using it. Registering a design or patent may also be relevant if you have invented something. Get potential suppliers and consultants to sign non-disclosure agreements before giving them any confidential information. Finally, have a solicitor review any consultancy agreement to confirm that any intellectual property that is created for you is actually assigned to you.

Get it in writing

Prepare terms and conditions for use with your customers and suppliers to ensure each party’s contractual obligations are clear, to comply with consumer law (if relevant) and for a smoother contracting process. Then your sales team can concentrate on selling.

Comply with data protection law

If you intend to process the personal data of individuals, you will need to know and comply with the relevant law to protect the data. No doubt you will have heard of the General Data Protection Regulation (GPDR), which comes into force in May 2018. The law is becoming wider, stricter and more punitive.  It cannot be ignored.

Know your employment obligations

If you are employing a person or team, you will need a standard employment contract, an understanding of employment law and to register for PAYE. As your team grows, you may need a staff handbook and/or decide to set up a share option scheme.

Other requirements

Other requirements may include business premises (purchase, lease or serviced), a licence to run your business, compliance with health and safety law, and taking out appropriate insurance policies.

All of this may seem intimidating, but with a good solicitor to guide you, it need not be.

This article was written by Charles Hylton-Potts

Please note the contents contained in this article are for general guidance only and reflection the position at time of posting. Legal advice should be sought before taking action in relation to specific matters.

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