Investing in legal advice as a startup
The value of investing in legal advice for your business cannot be underestimated. By receiving proper legal advice early on in the business life cycle, even when you’re a startup, you could potentially make costs savings and allow your business to operate more efficiently.
Legal fees are likely to be a perceived barrier for a business owner to engage with a solicitor to discuss and receive advice regarding their business. Whilst it is important to manage costs and expenses for any company, the value of taking legal advice regarding the operation is paramount, as whilst owners are fantastic at commerce, sometimes the legal and regulatory framework which the business (and business owners as directors and shareholders) operate in, can be somewhat overlooked.
The main legal areas that any business owner must consider in relation to their startup are the terms by which the business trades, brand protection and regulating the relationship of the owners (where there is more than one owner!).
The terms by which a business trades, whether it be with suppliers or customers, is one of the most important documents for your company as it creates the legally binding rights and obligations for each party. Terms of business will cover specific details relating to the supply of goods or services, when the business can raise its invoice, the payment terms of the invoice and limiting the supplier’s liability amongst other things.
These terms must reflect the way the business is conducted so the protection given is relevant and effective. We have seen clients copy other terms from the internet, and however tempting this is, it is a dangerous approach which may leave the company exposed. These types of generic terms may not provide the relevant protection required as there may be gaps or they may not cover specific issues relating to the business. If your startup trades with consumers and/or online, then there are multiple regulations and laws which will apply to this type of business and it can be onerous to navigate by yourself, as consumer legislation is highly prescribed.
Brand protection is another area that a new business must consider. This is not limited to protecting your own brand, as any new business will need to conduct research to ensure that it does not step on the toes of any other brand. We have advised on several cases where clients have received letters from other businesses or their lawyers, stating that the new business infringes their trademark or other intellectual property rights.
Copyright arises automatically in relation to the business name and/or branding, but this only prevents copying. A trade mark provides relevant protection as it protects the name and branding which is potentially the same or similar. Trade marks give the business owner a monopoly regarding the business name or brand for the specific class of goods or services they deal in, which can be very valuable.
Owners must also consider how they intend to regulate the relationship between the business owners, so that all parties are clear on the mechanisms and procedures upon the occurrence of certain events. Shareholders Agreements deal with these aspects and include, amongst other things how significant decisions of the business are decided between the shareholders, the procedure if a shareholder wishes to leave the business (including pre-emption rights on the transfer of shares), restrictions on the shareholders both whilst they are a shareholder and after they have sold their shares to protect the business.
The shareholders agreement is a valuable tool for any business as it allows the owners to agree and have clarity regarding the procedures and mechanisms required in order to run the business and to deal with owners when things go wrong.
The value of legal advice for startups might seem like a high initial cost but as we have seen the value in obtaining advice at the out-set and having clarity on the legal issues facing the business can far outweigh the legal costs.