How to ensure your startup is legally sound during a recession

With the news full of warnings of an upcoming UK recession, business owners throughout the country will be conscious of what this may mean for them and their businesses.

As a startup owner, it is more important than ever to protect your company by securing the legal side of the business. If you can ensure your business is covered during a downturn, it places you in a strong position of growth when the ‘green shoots’ of economic recovery re-appear.

In this article, we discuss some key aspects to consider if you want to ensure your startup remains protected from a legal perspective.

Which documents and agreements do I need?

Many entrepreneurs eager to launch their new startup often overlook some legal aspects of their business, favouring just going straight for sales and achieving momentum.

Whilst this may be understandable, it can be risky if things don’t go to plan.

With this in mind, as a minimum, startup businesses should ensure the following documents and agreements are all in place:

  • Corporate documents, including a Shareholders’ Agreement and any applicable Share Options, etc
  • Standard Terms and Conditions of Business
  • Bespoke Commercial Agreements (as required)
  • Directors' Service Agreements and Employment Contracts (as appropriate)
  • Supplier Agreements for the certainty of supply (where applicable)
  • Commercial Lease for leasehold business premises where the security of tenure is required
  • Intellectual Property Registrations (if needed)
  • Website Terms & Privacy Policy

Although you may require more detailed documentation based on your type of business, these documents will help to keep your business protected against some of the most common legal issues that startups face. LawBite has a library of free document templates, which you can download and edit based on your requirements.

What type of insurance does my business need?

The specific insurances you require depend on your sector and type of business. However, generally, all companies should hold the following insurances as a minimum:

  • Public Liability Insurance (PLI)
  • Employer Liability Insurance (ELI), if you’re employing staff
  • Professional Indemnity Insurance (PII), if you're providing professional services
  • Product Liability Insurance if you’re manufacturing or selling products

It would also help to consider other commercial insurances appropriate to your circumstances, including cyber insurance, Directors’, and Officers’ (D&O) Insurance, etc. 

If you have business premises, you will likely need to consider Buildings Insurance and Contents Insurance.

Likewise, such policies must be maintained at all times via prompt payment of premiums and full disclosure of all material facts and circumstances.

During an economic downturn, the likelihood of claims being brought can increase, so it is advisable to have the correct policies in place to cover you.

If you are unsure which insurances are right for your business, you can count on the advice of an insurance broker.

The importance of employment contracts and following statutory redundancy procedures

All your employees must be signed up to robust contracts of employment. This helps provide certainty and clarity to your contractual arrangements with your staff and helps avoid disputes or misunderstandings. 

You can also use these contracts to build protections for your business that the common law may not otherwise imply in the absence of a properly drafted agreement. These protections may, for example, include post-termination restrictive covenants and garden leave provisions.

If you need to make any of your employees redundant – you must follow the statutory redundancy procedures. Failure to do so can result in costly and stressful claims being brought against you at an employment tribunal.

To be fully compliant, you must give employees as much notice as possible and consult genuinely with them. If they want a representative to attend these meetings, it is recommended you allow this.

Furthermore, you must give the employee the reasons for the redundancy and the selection criteria and tell them why they have been selected. You’ll need to discuss any other options for employment in the business as well as inform them of what their redundancy pay will be.

Protecting your intellectual property

Whether you are creating artwork, taking photographs, manufacturing a new product, making audio-visual works such as videos or music, creating a website or an app, or providing a much-needed service, your Intellectual Property (IP) is an asset and will undoubtedly need protection.

Potential investors, joint venture partners, franchisees, licensees, and those looking to buy your business in the future will want assurance that you have protected your IP from being infringed.

You may also find, even at the early stages of your business that opportunistic ‘copycat’ competitors unfairly reap the benefits of your hard work and endeavours. During a recession, the impact of such a situation may be more challenging to recover from. You don’t want to find yourself in a situation where you're spending your already tight budget on lengthy legal battles justifying the ownership of your own hard work.

Wrapping up

There are always businesses that thrive during tough economic times. With careful planning and intelligent, friendly advice from experts, who have taken the time to understand your organisation and market sector, you can put your company in a position to be protected from any potential legal issues you might encounter over the next 18 months.