In the business community, Startup enterprises face unique hurdles. With founders frequently concentrating their efforts on capital raising, product development, and marketing, the legal procedures associated with running a firm and being an employer are not always prioritised. Failure to solve these difficulties, on the other hand, might result in considerable liability for the firm and its founders, thereby terminating the business before it even gets off the ground.
The phrase “startup” refers to a business in its infancy. One or more entrepreneurs form startups in order to produce a product or service for which they believe there is a market. These businesses typically begin with high operating costs and low revenue, which is why they seek money from a variety of sources. Legal issues for start-ups as you launch, develop and grow can be numerous and complex. Choosing to expand your firm by incorporating, bringing on new partners or staff, or seeking further funding are critical decisions for your organization’s future.
Starting and growing a business requires meticulous planning to ensure that all relevant legal paperwork is in place. Our experienced start-up solicitors can serve as your guides and mentors as you navigate the maze of regulations that now govern business, as well as the needs of investors as your organisation grows in size. These new businesses often have a steep learning curve, even more so for founders who frequently find themselves wearing all the managerial hats. This is why it is critical to address legal issues early on, so that when the time comes to expand, the organisation is prepared and in good form to do so.
In this article, Startup law, we take a look at these issues in more depth.
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What should you be aware of – Startup law
Ensure an appropriate legal structure is in place
Numerous businesses fail from the start due to a lack of formal agreements that ensure they are fulfilling their obligations. This is typically because they are unaware of their commitments or are unwilling to invest the costs connected with obtaining proper documents. Unfortunately, failure to establish sound basics may have severe consequences, jeopardising the business’s future.
Determine the documentation requirements for your business from the start and, if in doubt, obtain independent legal guidance. While you may trust the people with whom you founded the firm, boardroom conflicts can arise at any time and rapidly develop.
At times, there is a misconception that once your legal structure is set, you are done. If you started as a single trader, you may wish to examine whether this structure remains appropriate for your ambitions.
Corporate housekeeping, which includes the completion of resolutions, dividend allocations, income declarations, and meeting minutes, is necessary as a limited company in order to ensure compliance with the Companies Act 2006.
When it comes to the most critical documents to avoid overlooking, a shareholder or co-founder agreement is one of the items on the legal checklist that startups sometimes ignore or opt out of at the start of their journey. These agreements spell out the parties’ roles, decision-making authority, and obligations, as well as provisions for termination and dispute resolution. Having these agreements in place enables you to document all aspects of your business’s operation and also lays the framework for future expansion.
They are vital when engaging expansion partners because they provide clarity on critical issues, indicate your commitment to compliance, and demonstrate that you have mitigated the danger of a legal conflict arising from your business’s legal structure.
Ensure all agreements made are in writing
The majority of agreements are achieved informally, either in person or over email. While these agreements may be legally enforceable, if they are not in writing, there is a possibility that disagreements over what was agreed upon would occur, necessitating legal action to resolve which can be time consuming, stressful and sometimes costly. Ensure that all verbal or electronic agreements are appropriately documented in writing to hold all parties accountable and eliminate the risk of a dispute.
Be specific about your trading terms
After establishing the legal structure, the functioning of your firm will invariably require conditions of business or other contracts with suppliers and consumers. These needs will change according to whether your business offers services, products, or a combination of both.
Product-based businesses will require extensive terms and conditions that comply with consumer laws to manage their interaction with consumers, and service-based businesses will typically require the establishment of contracts with clients.
While some firms may attempt to save money by developing their own and referencing competition versions, this might be a false economy. Each firm faces a unique combination of risks that must be managed, and it is prudent to establish robust bespoke trade conditions from the start.
A significant advantage of putting them in place as soon as feasible is that the terms will also lead your business’s day-to-day operations to be consistent with your terms. For instance, if your conditions state that reimbursements will be made within a particular time period, you know you’ll need to set up reminders in your customer relationship management software to guarantee this occurs.
Data Protection Considerations
Another critical aspect is compliance with privacy and data protection requirements. Founders should become acquainted with their initial compliance obligations and ongoing responsibilities. This can include:
- selecting a data protection officer
- registering with the Office of the Information Commissioner.
- selecting a data protection officer
GDPR compliance is heavily reliant on an understanding of the data you collect and how it moves through processes, including those with your business partners. Having this well defined and policies in place will make adding new information streams, services, or suppliers easier.
It’s natural to feel eager to share exciting news with the world when embarking on a new venture. However, providing information to anyone prior to acquiring a patent or copyright protection for any ideas may imply that someone else is free to acquire the Startup’s intellectual property and use it for their own purposes. It is in the business’s best advantage to maintain the confidentiality of any projects or potential endeavours until they are safeguarded.
Until you are able to safeguard your creation, it is a good idea to investigate non-disclosure agreements for any employees or co-founders to ensure that no knowledge is leaked within the organisation.
Consider the implications of scaling up
Scaling up a product-based business entails growing manufacturing capacity and expanding distribution or territory coverage through sales agents.
Contracting with new partners is critical to protecting your rights and risks in what are supposed to be long-term commercial relationships.
You must identify critical issues, such as dispute and liability risks, that must be addressed in both your contracts and working relationships. These contracts are as much about defining the terms of trade as they are about anticipating and resolving any potential difficulties that may arise between the parties.
Limit your liability
While many entrepreneurs understandably avoid addressing the risk of failure when embarking on a new endeavour, planning for all possible outcomes and potential challenges safeguards the venture against catastrophic repercussions. It is feasible to limit the damage in the event of a complication by applying appropriate procedures. However, failure to make earlier preparations may result in inadequate protection against prospective legal difficulties. This could imply that the venture will be held accountable for problems they believe are not their own.
Establish terms and conditions that will limit your liability if these situations occur. It is best to be prepared by having these precautions in place, even if they are rarely needed, than to be unprepared and find yourself in a pickle later. Assume the best but plan for the worst. This could range from customer service to legal matters involving employees and workplace accidents.
Will you be employing staff?
Unfortunately, we live in an increasingly litigious environment, where employees sue their employers for a number of reasons. Additional employees may well be necessary as the business expands in size and profitability to ensure the venture’s continuous operation. It is vital at this time to have the appropriate agreements in place to protect not only your business’s interests, but also any employees’ rights.
Prior to recruiting, create these agreements to ensure that all parties’ interests are protected in the case of a staffing requirement. Waiting until an unexpected need for employees occurs may result in agreements being disregarded, causing issues for all parties. Strong employment contracts can help build an excellent business culture.
Appoint an experienced corporate solicitor right from the start of your venture.
Obtaining legal assistance during the business formation process can have a significant impact on the venture’s future success. The solicitor you select will be responsible for document preparation and business advice. By being aware of potential legal roadblocks, you may ultimately save time and money.
Another frequent blunder committed by many businesses is attempting to produce documents on their own rather than retaining professional legal counsel. While this may appear to be an attractive choice initially due to cost savings, the majority of firm co-founders are unlikely to possess the necessary abilities to write such documents properly. Again, without the advice of an attorney, incorrect paperwork may be drafted, resulting in future issues. Online templates are only beneficial to a certain extent.
Seek appropriate legal advice from a professional solicitor who is knowledgeable about your sector. A commercial lawyer with both legal and business expertise can be a useful addition to your team.
Find yourself a good accountant
New enterprises may be unaware of the tax consequences for their firm, which means they may misinterpret their responsibilities and may not properly handle tax and VAT. It is critical to have a firm grasp on how and when you will be required to pay your taxes and to establish clear procedures for doing so. Failure to do so may result in serious ramifications, including legal action.
Hire an accountant to assist you with your tax and VAT policy and to assure compliance.
If a Startup does not keep proper records, it might be difficult to track business activity. This can be problematic when determining whether the endeavour is operating well.
Maintaining accurate records enables co-founders to assess the business’s performance and prepare for the future. Maintain an organised system or a secure online solution for storing all of your paperwork. This considerably simplifies the process of keeping track of the business.
Don’t put off any potential legal problems
Without a doubt, establishing a new business may include unavoidable legal complications. By proactively addressing these problems, it is possible to prevent them from spiralling into larger ones. While burying your head in the sand may seem more appealing at first, if you ignore these worries, they are likely to increase and become more difficult to handle with time. Address legal difficulties as soon as they arise. Consult an independent legal advisor if in doubt. Certain issues will require immediate attention, and neglecting them will only complicate matters for your new firm. Taking on any challenges head on gives you the best chance of conquering them and ensuring the success of your new enterprise.
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We have a proven track-record of helping clients with their Startups. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.
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