• Startups
  • March 16, 2021

10 Steps every Start Up must take to avoid Legal 'Bear Traps'

Every start-up business needs the law. Unfortunately, many cut corners or worse still, ignore the legal side of their business all together. Here's the LawBite guide to avoiding some of the common 'bear traps' facing SME's today.

Make sure you keep your key ideas and information confidential.

If you are raising money or talking to future trade partners don't be afraid to ask for a signed confidentiality agreement to prevent disclosure of your valuable and private ideas, finances and data.

Cover arrangements with your investors or partners with proper paperwork.

If you are going to take in investment or a loan from an angel then make sure that terms you are happy with are agreed and signed off in relation to ownership, commitment of funding and controls. If you are creating a business with a fellow founder or shareholder make sure you have a signed shareholders agreement that covers the equity percentages, dilution, operation and control of the company. Everyone may get along swimmingly at the beginning but unfortunately that can all go wrong later. It's much easier to clarify things at the beginning than in the middle of a dispute.

Cover arrangements with people who work with or for you.

If you are working with contractors put in place consultancy agreements. If you are working with employees put in place employment agreements. This regulates arrangements between you clearly and can also make sure you cover off any legal requirements. Put some simple paperwork in place with Non Execs too so that each of you knows what is expected from the other.

Cover arrangements with trading partners with contractual paperwork.

Whether you are working with distributors, licensors, agents, introducers, joint venture partners or suppliers, make sure you have written agreements in place which allocate risks, responsibilities and rewards between you clearly. Handshakes won’t take care of these details and failure to do so can put at risk revenues, margins and profits.
Protect your intellectual property.

If you have copyrights make sure that you document what you own (whether it is content, written works or software). Make sure that co-contributors have signed off agreeing that you own it, so there is not an argument later. If you have trademarks or designs that are protectable see if you can register them. This doesn't have to be too expensive either in the UK or the EU. Patents are more expensive to obtain and administer but can add exponential value to your company. An initial meeting to check whether your technology may be patentable doesn't have to be expensive.

Cover arrangements for software development and maintenance with full paperwork.

If you are commissioning apps or software then ensure that the paperwork is covered off with the developer do that it is clear who owns what, how much you have to pay, and how changes are to be dealt with. If you are using a third party to maintain your website or your software it's worth putting in place paperwork to cover off cost, expenses, responsibilities and timelines.

Make sure that you comply with laws and regulations which apply to your dealings with consumers.

There are wide- ranging laws covering data protection, privacy, use of cookies, consumer rights to opt out of transactions. You must ensure that you comply with these in order to avoid needless penalties or damage to your reputation.

Comply with company law in the way that you run the company.

Whether its share transactions, stock transfers, updating the Company's books, filing records at Companies House, complying with your Articles or complying with Director's duties. Getting these things wrong can incur financial penalties, reduce valuations and is costly to sort out.

Make sure you stay onside with the taxman.

You will have responsibilities in relation to VAT, making tax returns, operating PAYE or National Insurance. As the recession has depressed tax receipts the Taxman is increasingly aggressive and unforgiving if you get it wrong. Avoid needless penalties and wasted time - find a good accountant who can help you with your tax. They can also help you with structuring and operating your company in ways that mean that you can legitimately reduce tax bills.
Manage disputes maturely.

Everyone has disagreements sometimes. You may have right on your side and you may feel very passionately that you have been treated unfairly. However litigation is expensive and time consuming as well as burning bridges. It is also very risky, however right you may feel you are. Skilful negotiation can unlock even the thorniest disputes, and Mediation is successful around 80 percent of the time. These routes are less costly, quicker and can leave the original relationship intact.

Click here if you want LawBite to help you with any of these issues - including legal advice, document selection, legal document templates, negotiation help, mediation, or accountancy help from our trusted suppliers.

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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