TEN LEGAL PITFALLS OF START-UPS
The number of start-ups in the UK has been at record levels in recent years, but anyone planning to follow suit should be aware of the numerous legal issues involved.
Launching a start-up can be one of the most exciting things you ever do: a chance to shape a business from scratch, set goals of your own making and enjoy the wonderful feeling of success.
However, anyone wanting to launch a start-up in the UK needs to ensure they don’t undermine their chances of success by failing to comply with the law.
The following are ten areas to be especially mindful of are:
· Company name
· Intellectual property
· Company structure
· Employment law
· Digital regulations
· Non-written agreements
· Document storage
Why should you choose your name carefully?
When thinking of a company name, your focus may be on finding something catchy and memorable. However, you should also check very carefully that it is not identical or very similar to an existing company name, as this can lead to legal proceeding being brought against you for infringinfg on the rights of another business.
An example of this is Sir Stelios Haji-Ioannou, founder of EasyJet, suing companies that have used the word ‘easy’ in their company names.
What intellectual property law issues should you consider?
The case of company names is just one example of intellectual property law and intellectual property rights that can be infringed. Other rights to consider when starting up a company include copyright and patent law.
It is vital to ensure you do not breach copyright laws by including material on your website or social media that you do not have the right to reproduce.
If you invent something new, you may be able to use patent to protect it. A patent gives you the legal right to take action against anyone who makes, uses, sells or imports your product without your permission.
How should you deal with tax?
A start-up needs to consider matters such as the VAT registration threshold (turnover exceeding £85,000), PAYE for staff, corporation tax and business rates.
Unless you are confident in tax and legal matters, you should hire an appropriate professional such as an accountant or a member of the legal profession to take care of such matters on your behalf.
When would you need a licence?
Examples of businesses that require a license include establishments selling food or alcohol, or entertainment licences. Failure to get the right licensing in place can cause major problems.
Cases in this area include the 2018 instance of an ice cream seller in Derby, whose rum and raisin variety was found to contain too much alcohol. He was told he could face prosecution unless he either acquired an alcohol licence or changed the recipe.
What structure should you choose?
Your company structure is another matter to consider. Each structure imposes different obligations on the owner in terms of statutory filings, and tax.
· If you are a sole trader, you can limit your legal obligations to a tax self-assessment form, but you are also individually liable for the debts of the business.
· A partnership is an easy structure to set up with no formalities required to begin trading for profit. However, it is always advisable to have a legal document such as a partnership agreement in place to outline the rights and obligations on both parties, to avoid any disagreements between partners in the future.
· The limited company option isolates your business from your personal assets. This means your personal assets are safe if the company fails. However a limited company comes with increased requirements for legal admin including confirmation statements and filing minutes of certain meetings. Failure to register appropriately with Companies House and submit annual accounts to HMRC will also incur penalties.
What should you know about employment law?
Once your start-up reaches the point of being a limited company with staff, several employment law issues arise:
· Staff must be given written terms and conditions that provide key details (such as pay, hours, place of work and notice periods)
· You must be diligent to avoid breaching laws on areas such as discrimination, unfair dismissal and statutory holiday entitlement
· You need to make sure your workplaces meet health and safety at work rules
· You must comply with auto-enrolment pensions law
Failure to uphold employment rights can lead to legal action from staff, while other bodies can be involved when other failures occur, such as the Health and Safety Executive in the event of an accident.
What about digital regulations?
Another legal peril is falling fowl of digital regulations, such as GDPR. You should know about your responsibilities for holding and processing staff and customer data under these rules, otherwise you may face action from the Information Commissioner’s Office.
When should you be insured?
Insuring your property and business is common sense at any time, but sometimes insurance is mandatory.
Any business with employees must have employer’s liability cover. Professional indemnity insurance will be a legal requirement for solicitors, accountants and some health sector professionals.
Why keep it documented?
Finally, there are the matters of written and unwritten documents.
Not every agreement requires a contract in law, but it is important to be aware that not doing so is a big risk; someone’s word is not legally binding and a verbal commitment is difficult to prove.
If you do keep documents, it is also vital to file them well where the law makes this a requirement. Failure to do so could mean you are unable to locate crucial paperwork that could support your position should any legal issues arise.
What you should do next...
The above issues are all important legal matters for anyone starting a new business to consider.
For this reason, it is advisable to make sure that you get expert legal help where necesary. Building a start-up is a challenge; but with KANR Legal Services on your side you can avoid some of the biggest barriers to success.