Avoiding future legal problems when starting a digital business

“At Lupton Fawcett we encourage and work very closely with many start-ups. We know how tough it can be in the early stages and we are keen to support the next generation of high-flying entrepreneurs and stars of the future.

Testament to this is the fact we are a long-term partner of Leeds Beckett University and sponsors of its Business Advantage Awards; an annual competition giving five winners the chance to win free legal advice. We are also supporters and partners with the University in developing its Business Centres in Leeds, Halifax, Wakefield and beyond.

Therefore, I thought it might be useful to share some of the experiences we have had in advising early start-up businesses and in particular look at some of the things that really do need sorting out, as early priorities, if you want to avoid difficulties and issues as the business progresses.

Ownership structures

One of the first things you need to look at is the ownership structure if there is more than one business owner. From the outset, you need to be clear who owns what and what the relationship is between the business owners. In the case of a limited company, that might mean you need a shareholders’ agreement, with a partnership you’ll naturally need a partnership agreement.

Whatever you do it is important to be clear. Don’t fall into the common trap of saying, ‘we kind of own it in these proportions and we’ll sort it out further down the line’. There are too many stories of companies becoming extremely successful, with someone who has had a minor role from the start suddenly claiming a large share of the business if it is sold leading to animosity and potential expensive legal actions.

If everything is agreed amicably at the start, and then appears in black and white, there can be no arguments or conflicts when an attractive offer is put on the table or the share price rockets.

 

Intellectual Property

The second area which can be fraught with problems is Intellectual Property (IP). This is a key area for the sector as there are so many digital businesses which have valuable IP, whether that is software they have developed, programmes they have designed or Apps they have created.

It is vitally important to make sure that the ownership of the IP is clear, copyright is established and that it is all owned by your business rather than being owned or controlled in any way by a third party.

The correct legal advice and the right documentation will ensure your IP is protected so that no one else can lay claim to something you have created which has grown to become valuable. It will also help you to avoid expensive legal action should someone lay claim to it or copy it once it is developed.

 

Employment

The third area I would always encourage people to firm up on is employment or consultancy arrangements. It can be a complicated area, and potentially a bit of a minefield, but simple straightforward legal advice will ensure everything is set up as it should be and that you don’t have any issues that can spin out of your control.

Make it clear on what basis you are employing your team, so that you know what you can do if you need to ask someone to leave. It can also protect your business if they join a competitor.

It’s great when things are going well within the business, but these documents are valuable if problems arise or issues occur, which means arrangements need to be brought to an end.

So ensure there is a properly drawn up contract in place from the outset to cover future employment issues.

Terms & Conditions

The fourth area which is important is the Terms and Conditions (T&Cs) associated with the business.

 With just about every company having a website it makes sense to include the appropriate T&Cs on the site so no one is in doubt.

Whether you are dealing with customers, working with suppliers, employing agencies, or using distributors, these relationships need documenting and setting out on a firm foundation.

Most of the time you will not refer to the T&Cs but they will protect the company in the eventuality that something goes wrong when dealing with third parties.

Occupation rights

The final area to highlight is occupation rights.

Most businesses will require workspace in which to operate. That might mean leasing a building or offices, which will entail signing a legal document to include the rights and obligations of you and the owner of the building.

You may opt for a more flexible deal, such as co-working or even sharing an office with a friend. Even these arrangements might not be quite as simple as they were originally presented.

Once again, my advice is to get a property lawyer to look at the terms of any lease/licence or other sharing arrangement so they can advise whether you have got the right terms for your business needs.

As with some of the other areas covered, what can start out as a happy and friendly arrangement at the beginning can soon turn hostile if you wish to leave and you’re presented with a bill for repairs and refurbishment of the property, responsibility for which were hidden in the small print.

What next

Naturally you may have taken advice and have all the right documentation in place.

However, if you haven’t and you are unsure of what you need to do, you can give Lupton Fawcett a call and speak to one of our experts who will be able to provide you with advice.

Although some may be reluctant to consult a lawyer, as they think it is expensive, we believe the context of getting everything right fundamentally at the outset of your business will be well worth it. And it could save you tens of thousands of pounds, as the business grows and enjoys success.

For further information about Lupton Fawcett visit www.luptonfawcett.com

Ends.