Looking at starting a business? There’s a lot to think about and potentially a lot of legal complexity so we’ve summarised our top 10 tips below:
- Protecting your business name
If you’re looking to incorporate your business as a limited company, once you have registered the name at Companies House you’ll have some protection as Companies House has a tribunal and procedure in place if someone else tries to register a business with the same (or very similar) name.
The limited company name, though, is only one part of it – a business could choose a trading name (rather than a company name) that is similar to yours.
By registering a trademark you are much better placed to stop them using a business name the same as or similar to yours. Without a trademark your trading name is only protected by a common law claim for “passing-off”. These are tricky as you’ll need to show that the other party has caused confusion in the market (which could be costly, time consuming, and sometimes impossible to prove).
If you are going to be the sole shareholder and director of your company then you won’t need to consider much at this stage when it comes to the constitution of the company. If there are a few of you, you might want to think about things such as what happens if one of you were to leave and who (ultimately) has control or the final say on matters. There may also be certain decisions that you feel everyone should make together, so unanimous decision making rather than majority.
Terms and conditions are not always the easiest documents to read but can be vital in limiting the company’s liability to its customers or suppliers. Assessing the commercial risks at an early stage can help you make the all-important decision as to which (if any) contracts you should focus your attention on. For example, if you are creating a software platform and will be processing large amounts of customer data, data protection policies and procedures will be key and could make the difference in getting customers to sign up for your product/services instead of going to a competitor.
If your business is in the world of technology you’ll need to make sure that the company owns this and has the correct contracts in place with, for example, any external developers or other consultants who are helping you to develop your product or service. Investors will want to see this too so you should ensure that all relevant IP (including anything which may have been developed/created prior to the company being incorporated) is assigned to the company at an early stage.
- Raising Investment
A lot of start-up companies will need significant cash injections to reach their full potential. Getting an investor on board can bring more than just cash but your investor will want certain protections and rights which you might need to compromise on.
You should not use debt finance to fund losses but debt may be appropriate to finance your working capital. So your work in progress (or stock) plus the time your customers take to pay.
Where debt is appropriate repayment terms will be important to consider, particular as many debt providers will want personal guarantees which may be secured on your home. Events of default should also be reviewed so that you are aware of the risks.
Ok you’ve only just started up but planning ahead will be key (and indeed investors will want to know what your ultimate goal is for the business). Having this goal in mind along the journey will also help you prepare in advance giving you the best chance of successfully delivering it.
Even if you don’t need/have any employees immediately, you’ll most likely recruit at some point. At whatever stage you take on employees you should consider putting in place proper employment contracts to include non-competition provisions to protect your company’s relationships with both clients and suppliers. These provisions will need to be carefully considered as if they go too far they could be deemed to be unenforceable.
If the employees will be developing intellectual property for your company you should also have clear provisions around this to avoid any disputes in the future.
- Salaries and Rewards
As a start-up company you might not be able to pay your employees the salary they deserve. To keep them motivated you could consider implementing an employee share scheme so that they could become shareholders (immediately or at certain points in the future) in the business. There are a number of tax-advantaged share schemes that could be suitable for your business, the most popular being EMI Options. You could link their shareholdings to time or even performance based targets.
- Employee Shareholders
If you do decide to reward your team with share incentives and they become shareholders you’ll need to think about what happens to their shares if they were to leave. This should be done before shares or options are granted to them.
You could decide on a simple structure (perhaps based on fair-market value determined by your accountants) or look at something more complex incorporating good/bad leaver provisions.
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