Amid the Covid-19 epidemic, a record number of new firms are springing up, demonstrating entrepreneurs’ desire to work themselves way out of the financial crisis.
Starting A Business In A Pandemic, a unique study issued by Harper James Solicitors, tells the story behind several of those newly founded firms. The national law company shares eight legal factors that every entrepreneur should be aware of in this article, which is aimed to help new enterprises from start-up to scale-up.
1. The Founders’ Contract
You and your co-founders may be closest friends at first, but disagreements over business may swiftly ruin a relationship.
A founders’ agreement will spell out all of the answers to important issues like the company’s objective and your ultimate aim. What are the duties and tasks of each team member? And when will shares vest, and how will equity be owned? Formalities tend to expand as organizations develop, and having a clear founders’ agreement will make those formalities simpler (and less expensive) to accomplish.
2. Agreements between shareholders and investors
Setting up a shareholders’ agreement will assist you in taking your business to the next level. A shareholders agreement is not required if you are self-funding your business. When co-founders or outside participants are engaged, however, you must be mindful of how much of the firm you give up in exchange for their effort. If you expect further rounds of funding, subsequent investors’ demands may eat a large hole in your stake in the firm if you gave too much away at the outset.
It’s critical to consider this aspect early on. While an active investor with a seat on the board of directors may seem like a good idea if they have a lot of expertise, you may find yourself handing over too much authority to an outsider in exchange for the money you could have borrowed.
Your shareholder’s agreement should include a sharing structure and shareholder rights that are equitable to all parties involved and reflect the investor’s genuine worth to your company. It must also have guarantees for confidentiality and a method for resolving issues.
3. Articles of Incorporation
Articles of Association are required for any business. The goal is to define the rights and responsibilities of everyone involved in the company’s ownership or management, such as directors and shareholders.
The articles are divided into five categories:
- The company’s responsibility to the shareholders. This is usually restricted to the nominal value of their stock.
- The number of directors, how frequently they meet, their powers and responsibilities, and how their meetings are conducted are all factors to consider.
- Shares and dividend rights, as well as any additional rights that come with them
- Shareholder decision-making, annual meetings, voting methods, and dividends
- Administrative informatio
Your legal adviser will assist you in drafting your Articles. If you utilized an agency to set up your company ‘off-the-shelf,’ the articles will most likely need to be amended as your business expands.
4. Attracting investment via the EIS and SEIS programs
Government-backed programs like the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme help high-risk startups obtain money. They’re incredibly popular since they provide tax advantages such as income tax and capital gains tax (CGT) reduction. Your firm must meet the scheme’s eligibility requirements, and the funds earned must be used for a qualified purpose.
The SEIS enables a funder to contribute up to £100,000 per year and get a 50% tax benefit on their investment. Because seed firms are riskier than other businesses, this is a more generous policy than the EIS. An individual may invest up to £1 million each year in the EIS and earn a 30% income tax reduction. Investors will not have to pay CGT if they retain the shares for a certain amount of time.
If you want to attract EIS or SEIS investment, you’ll need to change your Articles of Association and existing stakeholder agreements to meet the scheme’s standards.
5. Contractual terms
All companies, even start-ups, must have a set of standard conditions that apply to selling their goods or services. Even if you just do business online, your clients need to know what to anticipate from you when they do business with you.
What is delivered, what is paid, and the other terms of the transaction should all be clearly stated in your terms and conditions of business. They must explain what will happen if an issue arises. You may save a lot of money and time in the long run by identifying possible problems early on.
6. Initial contracts and trade permits
Whether you’re selling mattresses or microprocessors, there’s a rule that applies to your industry, so knowing what standards to follow to remain on the right side of the law is critical.
While applying for a license may seem to be a hassle, the repercussions of not having one may be serious, including fines and even jail time. Suppose you’re opening a restaurant, for example. In that case, your local government may be able to help, and an online search will likely provide useful information about other rules and licenses that pertain to your industry. A lawyer can assist you in submitting a licensing application.
7. Confidentiality and intellectual property
It’s critical to understand who owns your intellectual property rights (IPR) when you start a firm. Your company’s worth will almost certainly be based on the value of your intellectual property, and whether you’re searching for investors or selling, you’ll need to figure out who owns what.
If you’ve already hired people on a contract basis, you’ll hold the intellectual property rights to everything they generate. However, if the technology you rely on to run your business was produced by a jumble of the founders, pals, or contractors, you’ll need to sort this out or risk jeopardizing the value of your firm.
Finally, let your staff know how much you respect their privacy. Non-disclosure agreements (NDAs) or confidentiality terms in your employment contracts drafted by an expert may protect your company secrets.
8. Confidentiality agreements
If you manage consumer data as part of your company, you’ll have to comply with data privacy standards (the General Data Protection Regulations or GDPR).
It might be difficult to manage the GDPR’s complexities, but here are some key ideas to keep in mind:
- If you retain or handle customer data, either directly or via subcontractors, you must register as a data processor or controller with authority (the Information Commissioner).
- If you believe a data breach has occurred and personal information about your clients has been compromised, you must notify the authority immediately.
- Your contractors must be bound by contracts that hold them accountable if the information they have about your consumers is not secure.