Starting a Business: Your Legal Checklist
22 March 2019
There will be a million and one things running through your mind as you embark on the exciting journey of entrepreneurship and, undoubtedly, the legal issues that arise will be not be number 1 on your list of priorities.
This blog will provide a brief overview of the sorts of things you need to be thinking about to protect your business and ensure its successful growth.
1. Setting up your business
One of the most important decisions you need to make as a start-up business is which legal structure you are going to choose. This will impact your liability, taxation, management, financing and other key issues.
There are several different types of business entity but the most common for start-ups is a private company limited by shares.
A limited company is a private company that is completely separate from its owners. This means the owners are only responsible for any debts up to the value of their investment. The main points to note are that:
- Private companies are limited by shares. This means that the company is divided into shares and profits are distributed among shareholders depending on the value of their share.
- A limited company can be owned, managed or registered by just one person. One person can act as both a director and shareholder.
- Limited companies must pay corporation tax and capital gains tax on all taxable profits and shareholders will receive a share of those profits in the form of dividends.
- Limited companies can sell shares in exchange for capital investment.
Once you have selected your company structure, you will need to decide who the key individuals are in the business. For example, if you do set up as a private company limited by shares, you will need to decide who the shareholders are and who you would like to appoint as director(s). Almost as important is ensuring that agreements are in place between the co-owners of the business to deal with any issues that may arise, and this can be done in the form of a shareholders’ agreement.
Top tip: many funding providers make it a condition of any facility that a shareholders’ agreement is in place.
2. Brand Protection
Your company brand includes the type of product or service your business provides, your logo, slogan, company colours, design, symbols or other features that make your business identifiable to your customers. Your brand is what sets you apart from your competitors and in essence, is the identity and personality of your business.
Your brand can be protected through a range of registered and unregistered intellectual property rights such as copyright, trade marks, patents and design rights and you will need to consider who has created the work. This will usually be either:
- consultants; or
If an employee creates the work during the course of their employment, the company (as employer) will be the owner of any intellectual property rights within that work, unless you have expressly agreed otherwise with that employee. The position is different however, for independent consultants and sub-contractors. In such a case, the consultant or sub-contractor will own the intellectual property in the work, even though you have paid them to create it. It is therefore crucial to include intellectual property clauses in your agreements to deal with this point.
Employees are a vital asset to any business and ensuring that their conditions, rights, responsibilities and duties are set out in a legally binding agreement is extremely important. An employment contract will provide guidelines and expectations to be met and there are many provisions in an employment contract that can protect your business’ interests, for example:
- confidentiality clause – this is a term that is implied into any employment contract, however, such a clause can act as a deterrent to employees and can help to classify what you consider to be confidential information;
- probationary period – almost 1 in 5 new employees fail to get past their probationary period or have it extended. Given these harsh facts, express probationary period clauses can provide both parties with an immediate period in which they can evaluate the success of the relationship without lengthy notice periods; and
- restrictive covenants – with the exception of disclosing confidential information, once employment has ended there are no other implied restrictions on employees. Restrictive covenants can therefore restrict what an employee can do once they have left the business e.g. to not set up in competition. However, restrictive covenants must be reasonable to be enforceable.
Contracts are essential for protecting your business from risk. The contracts you need will depend on the type of business you are running, but you are likely to need some, if not all, of the following:
- terms and conditions with your customers – these will include amongst other things, delivery, pricing, payment arrangements and your limitations of liability;
- terms and conditions with your suppliers – these will set out the scope of the goods or services, your rights and responsibilities and those of the supplier;
- non-disclosure agreements – this will require a party to keep certain information disclosed to it, confidential; and
- data processing agreements – this will require a vendor processing personal data on your behalf to keep that personal data secure. These agreements are particularly important given the increased fine regime under the GDPR.
Establishing a solid financial base for your new business is essential. The right financial mix will cover your short-term needs and will allow you to make the most of growth opportunities as they arise. Investment finance can be great to cover costs and start-up losses as you may not be able to guarantee that you will have profits to pay interest on borrowed money when you first start out. The biggest advantage to equity finance is that the investor assumes all the risk and if your business fails, you don’t have to pay all the money back. However, you must share ownership and control of your company with your investors so make sure they share your business vision and goals!
6. Advertising and Marketing
Marketing and advertising your product or service is one of the primary ways in which customers will interact with your business, learn more about you and hopefully purchase what you’re selling. It is important that the advertising you do is honest. You shouldn’t make any false or misleading claims and, always ensure you have evidence to back up all claims before making them.
You will need to:
- establish an internal marketing policy for staff (and perhaps a social media policy);
- ensure that the terms and conditions of any advert or promotion are clearly available;
- ensure you have the consents you need to direct market to your customers; and
- when working with social influencers and affiliates, ensure that any content posted by them is clearly identifiable as an advert.
7. Data Protection
You will need to:
- register with the ICO;
- identify what personal data you have, where it is stored and who you need to share it with;
- implement security measures to prevent security breaches;
- sign data processing agreement with all business’ processing personal data on your behalf.