Legal compliance isn’t a heap of fun - we get that. But then, neither is the prospect of stagnating or failing as a company. There are a number of reasons for startups and small businesses to flounder in their early years, however, a frustrating number of these occur as a result of drawn out legal proceedings. Don’t be one of these companies!
The law - as a concept - is fairly simple: if you comply with it and get it on your side it can be massively beneficial; if you fail to do so it can be a huge burden. Getting the legal foundations rock solid and getting the law to fight for you rather than against you, is absolutely vital for the success of small companies.
Addressing this doesn’t have to be expensive. Many startup founders avoid the legal stuff like the plague, worried about the spiralling legal costs that it may entail. However, the startup boom in the UK has coincided with a boom in the number of entrepreneurial law firms who are transparent, tech-savvy and who will offer fixed prices for a fraction of the price of traditional lawyers.
Anyway, let's get into the exciting stuff...
We've put together a short list of tips to help you out. They aren’t comprehensive, but consider them a crib sheet to help you on the way to growth and expansion.
Keep Your Friends Close - Intra-Company Relations
In terms of business sense, this is an obvious one really. Clearly your inter-company relations have to work well - people have to get on and be working cohesively towards the same goals.
There are legal elements to this, however, that are not so well documented. Simple contracts can be put in place between co-workers, co-founders, directors and employees that codify the rights and responsibilities of all parties. They can explain what is expected from who and, importantly, explain the procedures to follow in times of dispute, departure or disagreement.
The first and most obvious contract to get sussed is your Shareholders Agreement (SHA). This document will outline the rights and responsibilities of the founders. It will include provisions for any shareholder exits or sale of shares, and it will provide protection for minority shareholders, ensuring that while the parties to the contract remain shareholders, they will always have a say in the running of the company.
Organising your SHA at this early stage is crucial because that is when you will get the most out of it. If you wait until there is a fallout to work out which founder gets what, the process will be drawn out, expensive, and will not reflect well on the company’s reputation or bank account. From the right lawyer, a SHA can cost as little as £350 - a bargain considering an acrimonious fallout from a dodgy departure, and the far more expensive fees that may result. Facebook suffered a huge fallout between Mark Zuckerberg and Eduardo Saverin (we’ve all seen The Social Network) and were able to weather the storm due to large cash reserves; we wouldn’t recommend it for your company.
If you're hiring someone’s services, either as an employee or as a contractor, you will need to get their contracts straight. Again, this is nothing complicated, it is just something to get nailed down early to avoid any disputes. You will need to know whether you are hiring the individual as a contractor or as an employee and what this means for their contract. Let's not dwell on this one; let's just say, as above, that preventing a dispute is always preferable to trying to fix one.
Consider this the employment contract’s somewhat greyer and more serious older brother. It may wear different clothes and talk more seriously than the younger brother, but really everyone knows they are related.
The reason they are related is because they both determine the relationship of the individual to the company. The core of the contract is the same - both will contain payment provisions, confidentiality agreements and termination clauses, for example - however, the Directors Agreement will contain additional provisions to bring it in line with company law as well as employment law.
The role of ‘Director’ is viewed as legally separate from that of ‘employee’ and a Director does not necessarily become an employee simply by virtue of them being a Director. With the two as separate legal positions, this can lead to the potentially bizarre situation where a director who is also an employee may be fired by the company (no longer an employee) but may still be a Director, with all the corresponding powers this entails. The last thing your startup needs is a disgruntled former employee that still has Directors’ powers.
A well-drafted agreement can clearly explain what will happen in this case, you just need to make sure you have this cover.
Keep Your Enemies Closer - Dealing With Outsiders
The legal cover you need when dealing with clients or business partners is just as important as the cover you need within your company, if not more so. These relationships are the ones that will expand your reach and grow your company - the last thing you want is for one of them to turn sour due to legal issues.
Start with Non-Disclosure Agreements, they will protect your confidential information whenever you discuss it with someone. Then you're going to need some basic Terms and Conditions, they define your relationship with your clients and should limit your liability for certain things. If you’re using a website, you’ll need to get your Privacy and Cookie Policies in order, they will let the customers know how you use and store their personal data.
All the above can be done for minimal costs and the most expensive ones should only cost around £400 from the right lawyer.
Beyond this, things get slightly more complex. You will need to consider your service agreements if you are outsourcing services or collaborating with others. Although they may seem excessive, especially if your client is an old friend/relation/jail-mate, without clearly defined parameters, misunderstandings can develop and problems can arise.
As tempting as it is to agree things with a handshake and a beer, don’t leave it like this. Clarity underpins a good trading relationship and your business dealing will be far more efficient if you are both on the same page (literally). Once you’ve signed the contracts, then you can go for another beer.
Agreements like this will vary from company to company. If you are a medium-large company, they will need to be more stringent than if you are self-employed and one that is too restrictive may even hinder an early-stage startup. However, you will still need the cover there in some form. It’s simple business sense: the risks of leaving your company open to dispute far outweigh the initial cost.
Now this one’s a bit more exciting. That brand name that came to you in a dream, that logo you paid a bomb for, that code you slaved over for weeks: this is how you protect them. Using trademarks, copyrights or patents, you can ensure the security of your brand. You can keep it unique to you and jump on anyone that tries to steal it.
It is well known that Coca-Cola have never patented their secret recipe. If they did so it would become public. Instead, they keep it locked in a vault, in a vault, in a vault. It is one of the best guarded secrets out there. Despite this, however, we wouldn't advise this strategy. Far better to prevent the misuse or abuse of your brand by protecting it at the IPO. Your brand is your most important asset - it is how you are recognised by customers and how you trade as a body. If it is not secure, you may as well pack up your company right now.
There are three main types: copyrights, trademarks and patents. Copyright refers to recorded work. Traditionally this meant pieces of artistic, musical or literary nature, but it has been expanded to include code. If your company uses a slick app, you will want to know about copyright. Trademarks are names, words, designs or any other unique devices that identify your product. Patents are to protect inventions or designs.
While the processes behind IP law are not ‘legal’ in that they don’t require a license, a wig or a law degree, they are bureaucratic and complicated. Hiring an IP lawyer will free up so much of your time, will give you genuine brand security, and will allow you to focus on other things like growing your company.
So there it is! Our easy-to-use starter guide to small business law. As mentioned above, this list is not exhaustive. It is essential, however, that these documents are sorted and these legal requirements complied with. If you have the ambition and the drive to grow as a company, you will recognise that any initial costs or difficulties will be significantly outweighed by future gains.