Starting a new business is an exciting but stressful time. The decisions you make in these early days will have a significant impact on the trajectory of your company and its future success. It is therefore important that you get them right.
Taking the time to properly address the often-time-consuming administrative tasks at the start of your business journey will stand you in great stead for the future. One of the most critical aspects of this process is getting on top of legal matters. These are varied and can often be complex and tackling them on your own can be a challenge.
Seeking good legal advice as early as possible will ensure your company is built on solid foundations and is protected from the very beginning. This guide will provide you with five fundamental tips that can help you make the right choices to ensure your start-up gets off to the best possible start.
Get legal advice early
When you are launching a start-up, the earlier you seek legal advice the better. Even before you officially launch a new company, taking care of all legal responsibilities will give you the best possible chance at success. Just from a financial perspective, any legal costs will be significantly lower if you get advice before any problems emerge. As with most situations, it is always cheaper to prevent problems than to ‘fix’ them once they have arisen – not to mention the amount of time and stress it will save you too.
Choose the correct business structure
One of the earliest and most important decisions you will face will be which business structure to use. This will shape your business goals, operations, marketing strategies, funding sources and practically every other aspect of your company.
There are various structures available and the option you choose will depend on a number of factors. These include the size of your business, the industry you operate in, your willingness to be exposed to personal liability and the level of administration that you are happy to undertake. Each business structure has its own unique legal responsibilities, so it is important to make yourself aware of the relevant documentation, taxes and any other associated legal obligations.
Businesses can either be incorporated as limited companies (private or public companies), limited partnerships (LPs), limited liability partnerships (LLPs) or unincorporated, as sole traders or general partnerships. Take a look at this helpful guide for a breakdown of the advantages and disadvantages of the various business structures.
Important considerations when deciding on a business structure include tax-related issues. Differing tax treatment applies to each type of business structure and specialist advice should be sought from your accountant or tax adviser as to the most tax efficient structure for your business. For help and advice on the formation of your company please do contact one of our team.
Document management and business relationship
Whatever business structure you decide upon, it is very important that you establish in writing the business relationship between the parties that own and manage the business. This will clear up any ambiguity in responsibilities and will go a long way to preventing disputes further down the line. These legal contracts will depend on the business structure and typically take the following forms:
General Partnerships – Partnership Agreement
There is no legal requirement for a partnership to adopt a constitution. The default position in relation to partnerships is governed by the Partnership Act 1890 (PA 1890). If the partners want to defer from the rules and obligations imposed by the PA 1890 then the partners should enter into a written agreement (known as a partnership agreement) which regulates the partnership business, or the relationship between the partners.
Limited partnerships – Partnership Agreement
Like a general partnership, LPs are not required to adopt a constitution. There is also no legal requirement for the partners in an LP to enter into a written agreement which regulates the LP business, the relationship between the partners or the workings of the LP. However, in practice, most partners in an LP will wish to put such an agreement in place, rather than relying on the default provisions of the Limited Partnership Act 1907, the PA 1890 and law relating to general partnerships.
Limited Liability Partnerships – LLP Agreement
The members of an LLP are not legally obliged to enter into any formal partnership agreement regulating the relationship between them (despite being a body corporate). However, it is certainly advisable to have a written agreement (an LLP Agreement) and the formal procedures for incorporation of an LLP which should be in place before the LLP starts business. Where there is no LLP agreement, or if there is an agreement but it is silent on a particular issue, the default rules in the Limited Liability Partnership Regulations 2001 will apply. These rules are not comprehensive and will not be appropriate for all LLPs. A formal LLP agreement, is a private document and it does not need to be filed with Companies House or any other public registry.
Companies – Articles of Association and Shareholders’ Agreement
It is a requirement to incorporate that all companies adopt a written constitution and this is made up of the articles of association and any resolutions or agreements to which Chapter 3 Part 3 of the Companies Act 2006 (CA 2006) applies. However, a company may choose whether to adopt all or part of the provisions prescribed by the CA 2006 or adopt its own bespoke articles. In addition to the articles of association, some private companies (or unlisted public companies) may also put in place a shareholders’ agreement which regulates the relationship between the company’s members. It is certainly advisable to take advice on what is appropriate for your company before incorporation as there are strict procedures for amending a company’s articles following incorporation.
As with most of the aforementioned points, the level of detail required in the agreement will largely depend upon the complexity of your business arrangements and the number of individuals involved.
Correct contract terms & conditions
Businesses often underestimate the importance of their terms and conditions. This will be the contract that is used to enter into the majority of your transactions with your customers and suppliers, etc.
Commercial contracts are vital to the efficient functioning of any business. They detail in writing the professional relationship you have and they govern your everyday business dealings. It is therefore crucial that the terms and conditions of these contracts are drafted correctly to protect your rights, limit your liabilities and lessen the chance of legal disputes between you and other parties.
It is your responsibility to make sure any participants in your company are aware and agree to your terms of business. This can be achieved by sending them a copy of the contract or printing them on the reverse of other documents. It is important to remember that as every business is unique, so too are their commercial contracts. Commercial solicitors can advise on the various legislation and complex rules that go into a comprehensive contract to ensure all of your legal bases are covered.
Most companies, regardless of their size, will have a website and all businesses should ensure they have terms that deal with access to, and use of, the website. These include information about the website owner, rights to modify or withdraw the website, disclaimers for material published on it or linked to from it, rules about how such materials may be used and about unacceptable user behavior, such as hacking, introducing viruses and uploading illegal or defamatory content. Inevitably, if you have a website it is more than likely you will be collecting personal data and therefore you should ensure that you are complying with the obligations imposed by the General Data Protection Regulations (GDPR). Best practice would be to ensure that you also have an up to date privacy and cookies policy.
Protect your intellectual property
When starting a new business, one of your most valuable assets will be your Intellectual Property (IP). This is essentially any work you do that makes your company unique and can range from the services you provide to your brand name. It is vital that you ensure legal safeguards are in place to protect your intellectual property to preserve your future success.
Seeking legal help from the very conception of your company is the best way to ensure your intellectual property is fully protected.
It is also important when choosing your company name to ensure that checks are made in internet search engines, domain name registries, phone directories, relevant trade journals or magazines, and trade marks registry to see if any other business is already using the name. However, there is no central register of business names and accordingly, no requirement to register a business name. However, such checks help to ensure that your new business is not infringing the IP rights of another business.
We can advise on everything from copyright claims to trade secrets, as well as domain names, designs, databases and the commercial exploitation of patents.
If you have recently started or are looking to launch your own start-up company and you need guidance regarding any aspect of corporate law, contact one of our commercial law specialists today to discuss your queries further.