With the Covid-19 pandemic leaving the economy in turmoil and more than 820,000 people out of work, the UK business community is hoping the New Year will herald a fresh start for Britain’s entrepreneurs.
Around 56,000 new businesses are expected to start up this month – almost 2,000 a day. As specialists in advising ambitious businesses at each stage of their development, Harper James will be supporting many of these new enterprises as they embark on this exciting first step.
It's our business to give start-ups the legal advice they need for the very best chance of achieving their goals. We asked our legal experts for tips from their law practice area for new businesses starting out.
From carefully figuring out the right moment to file a patent, to securing your data and not being put off by making the occasional mistake, our seven legal tips for start-up success will set you on the right track.
1. Think about the right moment to patent your idea
'Everyone wants to protect their ideas - but knowing when and how to apply for a patent is key when launching a business with a unique product or service.'Lindsay Gledhill, Intellectual Property Partner
Patenting your idea can be complicated, often involving a lengthy process and high costs. Lindsay Gledhill, our intellectual property partner, who's guided hundreds of start-ups through the process of patenting their ideas, shares her advice.
'Think really carefully about whether you should apply for a patent. It is a very hard decision. We see some inventors who regret not applying early, but we see just as many businesses struggling due to the downstream patenting costs. If you are inventing a new product or process, ask yourself whether elements of it can be kept secret while in use by the customer. If so, you may be able to get the protection you need without incurring the cost and risk of filing patent applications. But you’ll need to make careful records of the secret information in case there is ever a dispute about it.'
2. Make sure any new enterprise is run on your terms
'Any entrepreneur wants the initial stages of their business to run as smoothly as possible, but you still need robust legal protection in place, however simple it may be.'Ed Kilner, Commercial and Technology Associate
Ed Kilner, our commercial and technology associate, recommends that any businesses starting out have an initial set of terms in place for their initial clients or customers.
'One of the best pieces of advice I can offer to anyone starting out is simply having a set of terms in place from the outset. They don’t have to be long and scary, but the key thing is to have a limitation of liability clause in place. Some clients come to us here at Harper James and say they have not had any written contract in place with their customers in the early days.
Some businesses believe this is a positive, as they don’t have to go through negotiations. In actuality, all this means is that if a claim is made against them their liability could be unlimited. But if they have even a simple set of terms in place with a limitation of liability clause in there, then they immediately limit their exposure as a young business.'
3. Secure your data from day one
'The handling of data is a key part of any business activity. GDPR rules can be confusing at times, however the security of data, both client and internal, needs to be paramount for businesses.'David Sant, Commercial Technology and Data Protection Solicitor
David Sant, our commercial technology and data protection solicitor, works with technology start-ups on GDPR compliance and digital collaborations. He recommends start-ups take note of GDPR from the outset.
'It might seem a headache when you are just starting out – but being mindful from day one that all businesses must comply with data protection is vital. There is often a misconception that small businesses don’t have a duty to register with the Information Commissioner's Office, or that they don’t have to worry as much about keeping personal data secure, but this isn’t the case. If your business uses or processes personal data of customers, suppliers or staff, it is wise to understand the effect of data protection laws on your business from the outset.
Remember, even if you are a small business, you will still have the same legal obligations as a large business to process personal data lawfully and transparently; to keep it secure and to comply with other data protection principles.'
Our data protection and privacy solicitor Clive Mackintosh added: 'Compliance with GDPR is often an unfortunate oversight in start-ups, with many entrepreneurs failing to recognise the value of data in business. Sometimes, businesses need to be educated on what they need to do in order to comply with GDPR rules, how they can do this and the best way to deal with large amount of customer or client data.
If data security is breached, businesses could face consequences including ICO fines, a loss of credibility or even civil suits from affected customers. Taking the time to receive legal advice prior to beginning operating will save businesses from having to deal with any of these outcomes.'
4. Don’t be complacent when it comes to employee contracts
'While it may seem like a chore if you’re only a small team, you should ensure that employment contracts are ready and can be signed either before or on the day a new member of staff starts working.'Ella Bond, Employment Law Solicitor
Ella Bond, our employment law solicitor, supports ambitious businesses of all sizes with their employment law matters. Getting employment contracts in place from the get-go is her top tip for companies starting out.
'Since 6 April 2020, some key information for terms and conditions of employment must be provided to employees and workers from their first day. Well-drafted contracts ensure this obligation is met. It will also help protect the company from the outset in the event of issues arising and means that any post-termination obligations, such as covenants, would be in place from the start. Remember, anyone working for the business should have a contract, including directors!'
5. Don’t feel just because you are a new business you have no bargaining power
'Often, start-up owners feel that because they are a fledgling business, they do not have a strong enough position in the market to leverage bargaining power, which can lead to unfair agreements.'Sarah Gunton, Commercial Law Partner
Sarah Gunton, our experienced commercial law partner, always looks out for the interests of start-ups when advising on commercial agreements. Sarah advises caution when it comes to taking on risk as a new business.
'As a small business, you may feel like you have less bargaining power than the person across the table, whether they are a supplier or a customer, and as such you may agree to terms which apportion a higher amount of risk to your business – often when the other party may be better-positioned to do so. This is a common mistake among start-ups looking to make a name for themselves, and when it is not commercially appropriate to accept a certain risk, it may be possible to argue that, if the other side wants the relationship to survive (or, indeed, thrive), they should take some of the risk.'
6. Consider using employee share schemes to improve your tax efficiency and attract talent
'Share schemes can help businesses in several ways, including to attract and retain talent, as well as reducing tax liabilities for both the employee and company.'Ian Fraser, Employee Incentives Solicitor
Employee share schemes are common in the world of start-ups, including Employment Management Incentive (EMI) schemes and, if businesses do not qualify for an EMI scheme, a growth share or other share ownership arrangement may be used.
Share schemes can help businesses in several ways, including to attract and retain talent, as well as reducing tax liabilities for both the employee and company.
Ian Fraser, says: 'Employee share schemes, whether they are EMI schemes or other arrangements, can benefit a new business in a variety of ways; they can help start-ups to attract and retain talent they may not have been able to otherwise, and by maximising the tax reliefs that are available businesses can improve their bottom line and shareholder returns massively.'
7. Be ambitious and don’t be frightened of making a mistake
'Starting out in business can be daunting and there will be times where things don’t run smoothly. But how you react when things go wrong can be critical to where your business ends up going.'Toby Harper, CEO and Founder Harper James Solicitors
Toby Harper, founder and CEO of Harper James Solicitors, knows the challenges entrepreneurs face, as a founder himself. He says being ready for these moments is vital when starting out: 'Be ambitious and don’t be afraid to go for it. The pandemic may throw up hurdles, but it also presents opportunities for entrepreneurs, particularly in the tech sector, to create new products and services. Have a clear plan and strategy in place and can get as much advice and support you can in the early days. Don’t be afraid of making mistakes - often it’s those moments, and how you react, which teach you the most when you are starting out.'