4 Startup Legal Considerations

by Startacus Admin

It’s a subject that can send even the most daring of startup founders fleeing like vampires before garlic…the law!

The problem, as most enterprising folks see it, is that the legal issues around creating and running a business are so complex and comprehensive, that only those with a law degree have any hope of getting a clear grasp of them.

That’s cowardly talk of course; truth be told there’s an abundance of legal startup issues that the average Joe or Joanna will be able to get their head around.  As a basic grounding, we are taking a look at some of the fundamental legal issues that are essential for the smooth creation and everyday running of your business; some of the things that you should bear in mind, and be ready to implement, when the need arises. 

Renting a premises 

Leasing premises is perhaps the biggest financial agreement that most startups / small businesses will ever enter into, and therefore it is vitally important that you have a crystal-clear understanding of what the parameters are and what the expectations of you as a tenant will be. 

There are a number of key things that you need to pay close attention to before making any formal agreements regarding a commercial premises, including: 

Landlord’s legal costs - Whilst not widespread practice, some landlords will try to insist that you cough up for their legal fees incurred from the property rental. Not everyone will request this, but if you find yourself in such a situation, you need to negotiate the best possible deal for yourself.

Break Clauses - These are clauses that permit the termination of a lease before its official end date; allowing you to leave the property without finding another tenant to take your place. These can be especially useful for enterprises, because they remove some of the pressure associated with being bound into a long-term lease, should your business fail to thrive as you intend.  

Great news, but be careful of any additional charges which may be associated with such an action, and also be aware that many leases include a clause which allows a landlord to break a lease...caution is definitely required!

Alienation - Like a break clause, this allows you to vacate the premises before the termination of your lease, however it does not remove your responsibility to replace yourself within the tenancy.

Rent reviews - These are exactly what their name suggests - a review in the level of rent that you pay, and sadly like most things, this usually only goes in one direction. 

Depending on the length of your lease the landlord will want to hold a certain number of rent reviews throughout your tenancy; you should try to have these removed altogether, or limited to a very small number to protect yourself and your business from sustained and repetitive rent hikes.  

Rent deposits - Just as is the case with residential lettings, a landlord will request and hold a deposit, as protection against a number of possibilities including damage to the premises and your inability / refusal to pay the rent. The amount of money that you will have to hand over in a deposit depends on a number of factors, but will usually be the equivalent of a pre-agreed number of months rent. 

Legal Costs

As a startup there are things for which you will need assistance from the professionals, especially when it comes to shareholder vesting arrangements, employee share options and investment agreements for example. For a lot of enterprising folks this is one of the most pressing issues surrounding the creation of a startup; made even more taxing by the fact that startups are often operating with very limited financial resources.  

The pressure is compounded by the fact that there is a lot of conflicting information available on the web, meaning that getting a realistic idea of legal costs can be extremely challenging. How much should you pay for bespoke website terms and conditions? Will a £1,000 budget be enough to cover the Visa and immigration advice for your star import?

To give you a guide, we’ve found a rather clever little infographic, from Legal quotes provider Lexoo that we reckon quite neatly presents a general guide to the sort of prices that startups can expect to pay for a range of legal services.  We have included the infographic below for your reference.

If you decide to talk to a solicitor, here are a few tips to keep your legal costs down:

• look for solicitors that specialise in startup legal issues, who speak your language and ‘get it’ when you say you have nine months runway left
• large, brand name firms tend to charge large, brand name prices - trying a boutique firm or sole practitioner could halve your costs (especially if they work ‘virtually’ with no fixed office or high overheads)
• ask for fixed fee quotes for a defined scope of work, instead of hourly rates

Intellectual property 

Intellectual property (more commonly abbreviated to IP) is a tricky thing to define as it refers to something which is conceived in the mind of a person and therefore can be thought of as their legal property. That’s the mind-buzzing abstract description of it, but luckily it is an area of the law which has been so extensively developed that, limp as it may sound, is actually very well defined.  

If you keep an eye on the startup news circuit then you will no doubt have stumbled across at least one startup that has accidentally has fallen afoul of IP laws, or seen their own intellectual property ‘utilised’ by an unscrupulous rival. 

This is thankfully a very rare occurrence, but it does happen… (in fact, it recently happened to Startacus member David Senior) 

In a nutshell there are a number of legal frameworks that recognise and protect a person’s / organisation’s right to claim ownership of a particular creation or invention.  Each framework is complex in itself, hopefully this little summary of each should give you a grounding in the basics.

Copyright - is the most basic example of IP protection and gives you as the owner of a work rights and legal benefits to prevent the unauthorised usage of it, and the ability to benefit financially from it.

You do not need to do anything to invoke copyright, it is automatically applied to a range of original works and is often associated with artistic creations such as literary works, sketches, logos, photographs, computer programs, sculptures, recorded music, video and so forth. 

Trademarks - Trademarks cause something of a legal headache because the sheer range of things that can become a registered trademark leave quite a bit of room for ambiguity.In a general sense, a trademark is a distinctive sign or mark which is used to identify particular services / goods provided by a person or company.  This can include words, phrases, numbers, logos, designs, 3 dimensional shapes, and more.

The laws are about maintaining the right of a person / company to communicate the quality, legacy, and individual nature of the work that they create, in comparison to their competitors. As it happens we have come across a fab little calculator that will tell you roughly how much it will cost to register something as a trademark.

Patents - This is perhaps the most complex area of IP law, since patents are often considered the closest thing to iron-clad protection that is available.  They are a way of ring-fencing a product or a process that introduces a new / innovative way of doing something.   Getting a patent granted can be a long, laborious, and stressful process as all patent applications must be dealt with by a government department called the Intellectual Property Office. It will be up to them to decide whether a patent can be granted for your innovation, visit their website for a more in-depth look at the process. 

For a comprehensive look at some of the issues surrounding intellectual property you should refer to the Intellectual Property Office site.

Employing Staff

Recruiting staff is something that should be a very positive experience for any startup founder; it means that your business is hopefully on-the-up.  But again, this is a process which can cause a massive amount of stress and worry… there are just so many legal considerations to make! 

Some of the key information that you need to be aware of ad and keep handy at all times include

Contracts - These are essential and must include duties and responsibilities, hours of work, salary, sick pay arrangements, entitlement to holiday pay, parental leave etc.

Minimum Wage - This changes regularly so it is important to keep an eye out for updates, but at the moment (April 2015) this is £6.51 an hour for over 21s, £5.13 for 18-21 year olds, and £3.79 for 16 and 17 year olds. It is really important that you pay any staff at least the minimum wage; aside from the fact that it’s terribly immoral, it is also illegal and could see you landed with a hefty fine!

Sick-pay - ‘Complicated’ does not begin to describe this particular area of employment law, you can find all of the details here, but there are some basic facts that you need to know. Statutory sick pay must be paid to any employee who is employed under contract and is incapacitated for a period of more than 4 days. Sick pay must continue to be paid up to a maximum period of 28 weeks. This is your minimum legal obligation as an employer, you may offer more if you so wish, but you can’t offer less.

Holiday pay - All employees, full-time or part time are entitled to receive holiday pay.   Working out how much holiday an employee is entitled to can be a bit tricky.  An easy way to overcome this is to remember the simple fact that employees are entitled to 5.6 weeks of paid leave per annum, so in order to work out how much holiday pay a person should receive simply multiply 5.6 by the number of days in the week that they normally work.  

This will give you the number of days that a person is entitled to, now all that you need to do is work out their average daily earnings and you’re good to go. Be aware, that a recent Employment Appeal Tribunal (EAT) Ruled that overtime pay (rather than basic salary alone) must now be taken into consideration when calculating the level of pay a person receives during annual leave.

 **Disclaimer** Unfortunately, no one here at Startacus.net is an expert in business law, so if in doubt do be sure to check with the professionals before doing anything… the law can be a fickle mistress!

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Published on: 22nd April 2015