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  • Writer's pictureRebecca Newnes

6 essential legal areas to consider when building a startup

Updated: Aug 17, 2023

As a founder, getting on top of the key legal areas that will affect your start-up from day one will ensure your business is set up for success. As well as protecting your business, future investors will also want to be reassured that the legal side, including intellectual property, corporate structure and key contracts, is all in order. The following six points provide a high-level summary to get founders started.

1. Setting up your business structure

It is worth spending some time considering whether you want to operate as a sole trader, limited company or partnership. There are pros and cons to each structure depending on your circumstances. A company has limited liability and broadly you will not be personally liable for any debts of the company. However, do take advice before giving a personal guarantee to a bank or landlord. Also, remember to consider the tax differences and implications. If you will be sharing the business with someone else, as shareholders or partners, make sure you have a contract in place between you and any other business owners setting out your respective ownerships and obligations.

2. Check any existing restrictions on you, the founder

If you have just left another job or are still employed and starting a side hustle, you need to consider whether you are under any post-employment or current employment restrictions. Many of my clients want to start a business in their existing field and have not considered any previous or existing employment contract restrictions. You should take advice on any employment restrictions before you invest too much in your new business. Usually, any creative work and customer lists will belong to your previous employer even if you designed them during the course of your employment. It is likely you will need to start the creative process from scratch for your start-up.

3. Consultants and employees - formalise the role of any partners

From the outset, you need to make clear the status of your consultants, employees and anyone you are engaging with. Ideally, you should have a contract in place with any partners assisting you. Start-up solicitors often see founders seeking consultancy advice from trusted friends who then claim ownership of the intellectual property when the business is a success. A simple consultancy or employment agreement will ensure there is no ambiguity around the roles of any partners and that any intellectual property is owned by the business. It is much less costly to have these conversations upfront, contracts agreed and operate under those terms, than on trust alone which leaves scope for misunderstandings that could ultimately damage the prospects of your business.

4. Non-disclosure agreements

Before speaking with prospective suppliers, investors or other partners about your new business make sure you both sign a non-disclosure agreement protecting your information. If you have developed a great new brand you should protect this. Non-disclosure or confidentiality agreements (NDAs) also remind the partner that what you are sharing with them is confidential and that the information is stored safely. NDAs can be one-way or mutual and there are certain restrictions on how long information can remain confidential. Do seek advice if you need to on your NDA template.

5. Contracts with suppliers and customers - ensure your key contracts are in good shape

When buying or selling goods and services it is always more difficult to update contracts and try to change the terms once you are operating under a verbal or written contract, even as your business grows and your bargaining power increases. Therefore, it is worth spending a bit of time at the outset making sure you are content with the terms of any key contracts. At a minimum, consider payment terms, termination and any post-termination restrictions.

6. Trademarks

Consider if you want to register your business name or logo as a trademark. Depending on what you are looking to register this is a relatively inexpensive way to ensure your brand has immediate protection. You can also complete searches to ensure you are not in breach of an existing trade mark or whether there are any similar registrations in your industry that you need to be aware of. Check whether your relevant industry body or any business groups of which you are a member, or even your website host, has templates for their members/subscribers.

While we have explored a high-level summary of what founders should be considering from day one, there are other key areas of law you will need to ensure you are compliant with including data protection (registering with the Information Commissioner’s Office), health and safety, employment and any specific regulatory laws in your sector. However, do not spend all of your start-up budget on solicitors’ fees. Any legal advice you look for should be proportionate to your size, risks and business goals.

Spending some time at the outset getting the legal side of your business in good shape will assist you in the long run as your business grows and ultimately save you time and money. Having the above in good order will ensure you launch in a compliant way and as a brand customers and investors can trust.

Rebecca Newnes, Freelance Solicitor

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