(Guest Post) 5 Top Legal Tips for Start-Ups
May 24, 2016 - 3 minutes read
Posted by Claire Parker
When you start out on your journey from start-up to established business, there can seem to be a million things on your to-do list – a list on which legal issues often feature a long way down.
While your focus should always be on building your business and developing your product, there are a few simple things which any start-up can do to save some serious headaches down the line.
1) Agreement between Co-Founders
Start-ups thrive on the spirit of cooperation which exists in the exciting early days. However history is littered with friends who fell-out as their business began to succeed (or fail). A fairly simple agreement at the outset setting out things such as the roles, ownership percentages and capital contributions of each of the co-founders can go a long way to ensuring disagreements get settled quickly, or in the worst-case scenario ensure a relatively simple and low-cost divorce!
2) Non-Disclosure Agreement
Non-disclosure agreements are critical if your start-up is based around a novel idea or invention. A simple non-disclosure agreement will prevent a partner, developer or investor from using your confidential information for its own purposes.
Often potential investors will resist any attempt to sign them up to a non-disclosure agreement. In such cases, it is important to tread carefully on how much information you disclose. If you are overly secretive you risk putting off a potential investor, however any fan of the TV series Silicon Valley can tell you the risks of giving away too many of your trade secrets.
3) Intellectual Property Ownership
It is crucial to understand that, without an agreement to the contrary, most intellectual property rights vest in the creator of the work. This means, for example, that if you engage a developer to write code for you, then in the absence of a written agreement they will be the owner. You should always check the terms and conditions of any outside consultants you engage, and consider signing them up to your own terms.
Plenty of start-ups get a few months down the line and, on the eve of launch, receive a letter of claim from an existing business with the same, or a similar, name that they are proposing to use. Rather than proceeding for months under a taken name, consider carrying out a brief trade mark and domain name search on your proposed business name to uncover any potential issues before they arise.
It will normally be a routine decision to incorporate a new company through which to run your business. As a separate legal entity the company, and not the owners themselves, will be party to the contracts and ultimately liable for any failure to meet its obligations or liabilities. Incorporation can provide tax advantages and may give third parties contracting with the business some level of comfort as to the transparency and legitimacy of the business.
5) Terms and Conditions
Having a well-drafted set of standard terms will reduce your business’s liability, offer mechanisms for recovery when customers default and provide certainty in your favour when issues arise. An up-front investment in a favourable set of standard terms brings uniformity and certainty to every contractual relationship of your business. It can be difficult to impose your terms after the event, and therefore putting together a solid set of terms and conditions as soon as possible should always be a priority for any business.
At Brabners we advise businesses from start-up stage right through to large PLC’s and private corporations. If you run a start-up and would like an informal steer on any steps your business can take to minimise its exposure then please get in touch with Jacob O’Brien on 0161 836 8803 or at firstname.lastname@example.org.