Ten Top Legal Tips for Start-up Businesses

Starting a new business venture is both exciting and challenging and there are countless different considerations for a start-up when embarking on their entrepreneurial journey. Below, our Corporate & Commercial team outline ten top legal tips for entrepreneurs seeking to start a new business:

1. Structure

One of the first things you will have to think about when you start your business is what business vehicle you are going to use. There are various different types which include partnerships, sole traders, Limited Liability Partnerships and Limited Liability Companies.

The choice as to which business vehicle you will use is likely to be dependent upon a number of factors including tax regimes, the legal regimes applicable to it, the speed at which it can be set up, and to the extent that personal liabilities will be limited. The most common structure used for start-ups is a Limited Liability Company. The main reason for this being that it is a separate legal entity and also your personal liability is limited. However, it is important to be aware that particular corporate statutory regimes are applicable to companies operating within the UK, therefore there will be certain administrative requirements to meet and certain nominal costs to pay each year to Companies House.

2. Team

It is important to consider the management team and the ownership structure of the business. One of the key things we would recommend would be to look to bring on board people with the same goals as you but with a different skillset. This will allow you to all bring different ideas to the table and also ensure that all of the team have the same end results in mind.

3. Founder Agreements

If you are thinking of bringing other people into your business structure at management or ownership level it is recommended that you put a contract between the parties in place.  These are known as Founder Agreements, or in the case of Limited Liability Companies, Shareholder Agreements. These are private contracts made between individuals to regulate their relationship with each other and the company. They deal with various matters including roles and responsibilities, dispute resolution, exit and restrictive covenants. Having these agreements are a very helpful aid in the event of any dispute.

4. Business Plan

We would recommend that you put a business plan in place when starting your business. This can act as a guide to help you deal with unforeseen circumstances and plan your budgets and forecasts accordingly. While we do not expect this to be something that a company sticks to stringently, as all of the best entrepreneurs are able to pivot to help their business manage unforeseen events, it is useful to have in place and will certainly stand you in good stead to take on investment in the future.

5. Intellectual Property

Intellectual Property (IP) is effectively any idea or creation that you come up with in your start-up business. This can include inventions, literary work, software code, logos, names and designs. The likelihood is that IP will be key to your business, especially when you are in a business where the IP is what you are selling, such as software. Therefore, it is imperative that you put protections in place for your IP as soon as possible. You should seek advice from professionals who specialise in trademarks and patents to check if any of your IP is registrable. If so, you should get this registered as soon as possible.

It is important to protect your IP contractually, which is done by entering into contracts with any other person who may have input with your IP, such as third party contractors or employees. If you are using third party developers to input into code, or any third party for things such as your website content or to develop branding, it is essential that you get what is known as an Assignment of IP Rights from that individual. This needs to be in writing and signed by both you and the other individual. This confirms that the ownership of the IP lies with you and not the third party. Similarly if you have employees in the business or have consultants working for you and who use the IP in their job, it is imperative that you put IP provisions into the contracts you have with them confirming that they will keep this confidential, and that if they invent any IP during the course of their employment that this would be assigned into the business.

6. Licences and Permits

Depending on the nature of your business and the industry in which you operate, you may be required to obtain specific licences or permits to conduct your business in certain jurisdictions. Failure to get such permits or consents prior to commencing the business could result in suspensions or significant penalties from the relevant regulatory authority. It is therefore key that you consider whether or not you might require any such licences or permits before you start any business activity in a particular jurisdiction.

7. Confidentiality

Start-ups will have to disclose various pieces of confidential information at different times in their life cycle to important third parties such as potential investors, employees, contractors or developers. This information is likely to be extremely valuable to the business and in some cases will include the very value and USP that you want to protect. It is therefore imperative that you put in place agreements with all of those with whom you disclose confidential information, requiring them to keep the relevant information confidential, not to disclose it to any third parties, and to only use the information for the purpose of which it has been disclosed.

8. Corporate Governance

When making business decisions, it is important that you consider the corporate governance implications of those decisions, especially when you have picked a business vehicle such as a Limited Liability Company, which is subject to certain statutory regulations. There may well be specific consents that you need for certain decisions, or third parties that you need to confer with. The procedures are typically set out in the law or in the constitutional documents of your company. It is important that you pay attention to these procedures as failure to do so may result in the decision or action becoming invalid, or this could lead to sanctions such as fines.

9. Employee or Contractor?

Typically the personnel that work in a start-up business will be separated into two categories: employees and independent contractors. This distinction is crucial, as typically employers will owe additional obligations to those who are deemed to be employees due to the legislative framework that is in place governing the relationship between employers and their employees.

Contractor rights are usually defined by reference to a Service Agreement agreed between the parties privately. The additional obligations that an employer may owe to an employee include the obligation to provide a pension scheme, parental leave, sick leave and annual leave. Additionally, the tax regime differs between an employee-employer relationship and that of an independent contractor. Additional taxes such as PAYE and NIC contributions are required to be paid when a business employs an employee. It is therefore crucial that you understand and can make the distinction.

10. Personal Data

Businesses will inevitably collect and process personal data. Personal data is any information in which you can readily identify a living individual. Even when your business does not solely rely on personal data for its business model, it is inevitable that you will collect personal data as part of your everyday business operations. This can include information such as names, addresses, and telephone numbers of people you are in contact with, or even your employees. As such, it is important that you have the correct policies and procedures in place to enable you to ensure that personal data stays confidential and that your business complies with all necessary data protections, regulations and legislative provisions. Failure to comply could result in fines from the Information Commissioner’s Office (ICO) and could also lead to a tarnished reputation. If you process any personal data, the first thing we would advise is that you register with the ICO as a data processor.  We would also recommend that you put policies and procedures in place so that everyone in your organisation understands how personal data is to be processed on a day to day basis. This will also ensure that you have the appropriate processes in place should you ever be subject to investigation from a regulatory authority or a data subject access request from any individual on whose behalf you process data.

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Corporate team at Cleaver Fulton Rankin for further advice or information.

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