Building a startup: five legal milestones every founder should know
As a founder, I know firsthand how challenging it can be to juggle all the different aspects of running a business.
When it comes to the legal side of things, it can feel overwhelming to figure out where to begin. That's why I want to share with you five key milestones that I've learned from my own entrepreneurial journey.
1 - Choosing the right legal structure
Selecting the perfect legal structure for your startup is a big decision that can have long-term consequences. You need to consider factors such as the nature of your business, the number of founders involved, funding requirements, and your long-term goals. The legal structure you choose will affect your ability to raise funds, attract top talent, and navigate tax and compliance obligations.
Take the time to explore different options for example:
- Sole proprietorship/trader: The business is operated by one individual who is solely responsible for all liability
- Private Limited Company: This is the most common form of UK company incorporation. It is a separate legal entity from its owners and therefore protects them from liability. However, there are additional regulations that owners have to comply with
- Partnership: A partnership is between two or more individuals, who are equally liable for all taxes and obligations
Seek advice from legal experts, consult reliable resources like the UK Government website, connect with fellow founders, and tap into the resources available from your chosen bank. With the right legal structure in place, you'll set a solid foundation for your startup.
2 - Creating and managing contracts
Establishing a strong legal foundation means paying attention to contracts right from the start. Contracts are the backbone of your relationships with employees and customers. They help streamline your operations, provide financial clarity, and ensure compliance with regulations.
Some of the contracts a startup may create include:
- Founders agreements
- Investment agreements
- Non-disclosure agreements
- Employment contracts
By creating these contracts, you establish clear expectations and protect the rights and interests of all parties involved.
3 - Staying compliant with regulations
It's important to stay informed about the specific licences, certificates, or official documents required in your industry to make sure your business is protected against any future legal implications. Regularly review and update your policies to adapt to changing regulations.
Seek guidance from legal advisors who specialise in your field, stay connected with relevant networks, and stay up to date with industry publications and resources. Remember, compliance isn't a one-time task. It requires ongoing attention to ensure your startup operates within legal boundaries.
4 - Navigating fundraising
Founders and investors will enter into various agreements during funding and investment rounds. These agreements outline the terms and conditions such as legal rights and obligations of both parties.
During fundraising, investors may also assess intellectual property rights to ensure that the founder has the correct ownership and licences in place.
Seek legal counsel to navigate the complexities of fundraising and ensure you remain compliant with applicable laws and regulations throughout the process.
Any founder will tell you that fundraising is a rollercoaster ride, but understanding the different avenues available can bring some clarity and structure to the process.
There are a number of ways to find investors for a startup, including:
- Angel Investor Groups: These are groups of individuals who provide funding to startups in their early stages
- Venture capital firms: Organisations known as venture capital firms offer financial capital to early stage start-ups, in exchange for a share of the company’s ownership
- Crowdfunding: This method aims to raise money for a startup in exchange for equity or a reward
- Corporate partnerships: These are agreements between a startup and a corporation where the corporation offers funding in exchange for a percentage of the company
The process, TL;DR style:
First and foremost, focus on selecting potential investors and start building relationships with them. Develop a solid business plan that outlines your financials and articulates your unique selling points. Understand your target market inside out and be prepared to answer key questions from investors. Remember, securing adequate funding often depends on the strength of your connections and your ability to clearly communicate your startup's value.
5 - Building a strong HR foundation
Your startup's success relies on the people behind it. Building a strong HR foundation is key to attracting and retaining top talent, fostering employee engagement, and establishing a positive company culture.
Start by defining procedures for hiring and onboarding. Implement a reliable human resources system to manage payroll and time-off requests. Develop a comprehensive staff handbook that outlines your work-related policies and create contracts for employees that outline their benefits. Provide opportunities for training and development and ensure compliance with health and safety regulations and legal requirements.
This what is looks like in eight steps
- Set out procedures for hiring and onboarding, including correct procedures and documentation such as Right To Work
- Set up a Human Resources system, including payroll and time-off requests
- Build a Staff handbook which stipulates all clauses relevant to work, time-off, sickness policies, etc
- Create contracts for all employees, and include all applicable benefits
- Provide training and development opportunities
- Enrol people into a workplace pension
- Add PAYE/payroll obligations
- Ensure compliance with all health and safety, and legal regulations
Getting to grips with the legal requirements can feel like overwhelming but it doesn't have to be. By taking time to evaluate each step, you’ll help future-proof your startup and reduce potential growing pains.
These milestones are not just checkboxes; they are vital aspects that shape your business's future. Stay informed, seek guidance when needed, and keep them in mind at each stage. With a solid legal foundation, the sky's the limit.