eight Authorized Concerns For Beginning A Enterprise Throughout The Pandemic
In the midst of the Covid-19 pandemic, record numbers of new companies are being set up as entrepreneurs are determined to work their way out of the financial crisis.
The stories behind many of these startups are revealed in a special report, “Starting a Business in a Pandemic” published by Harper James Solicitors. Here, the national law firm that aims to support new businesses from start-up to scale-up shares eight legal considerations that every business owner should consider.
1. Founding agreement
You and your co-founders may start out as best friends, but nothing can affect a relationship faster than business differences.
A founding agreement provides all the answers to essential questions such as: What is the company's mission and what is your ultimate goal? What roles and responsibilities does each team member have? And how is the equity held and when do the shares vest? As companies grow, the formalities multiply, and a clear founding agreement makes it easier (and cheaper) to deal with these formalities.
2. Shareholder and Investor Agreements
Setting up a shareholders' agreement can help you take your start-up to the next level. If you finance your start-up yourself, a shareholder agreement is not required. But once co-founders are involved, or you have outside participants, you need to be careful about how much of the company you are giving away in exchange for their contribution. If you anticipate more rounds of investment, the demands of future investors can eat a big hole in your own stake in the company if you've given too much away to begin with.
It is important to think about this detail early on. While an investor who has an active role and a seat on the board may seem like a good idea if they have a lot of experience, you may be giving too much control to an outsider in exchange for funds you might have borrowed can.
Your shareholder agreement should contain an ownership structure and shareholder rights that are fair to all parties and represent the true value of the investor for your company. It must also contain confidentiality provisions and have a procedure for resolving disagreements.
3. Articles of Association
Every company must have a statute. The aim is to regulate the rights and obligations of every person who is involved in the ownership or management of the company, such as B. Its directors and shareholders.
The articles cover five main areas:
- The liability of shareholders to society. Usually this is limited to the face value of their shares
- The number of directors, how often they meet, their powers and duties, and how their meetings are conducted
- Shares and dividend rights and all other rights attached to the shares
- Shareholder resolutions, general meeting, voting procedures and dividends
- Administrative details
Your legal advisor will help you prepare your articles. If you've used an agent to get your business up and running off the shelf, this one has standard or model items that will likely need to be changed as your business grows.
4. Attract investment – the EIS and SEIS systems
Government-sponsored programs like the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme are designed to help small, high-risk businesses raise funds for their businesses. They are extremely popular because they offer tax benefits such as income tax and capital gains tax (CGT) relief. Your company must qualify for the program and you must use the money raised for a qualifying purpose.
The SEIS enables a funder to invest up to £ 100,000 each year for which they receive a 50 percent income tax break. This is more generous than the EIS system as seed companies are at higher risk. Under the EIS, a person can invest up to £ 1 million each year for which they receive 30 percent income tax relief. Provided the investors hold the shares for a period of time, no CGT will be due.
If you want to attract EIS or SEIS investments, your Articles of Association and any existing shareholder agreements will need to be amended to meet the requirements of the system.
5. Terms and Conditions
Startups, like any other company, must have standard terms and conditions that apply to the sale of their products or services. Even if you only trade online, your customers need to know what to expect from your business when they deal with you.
Your terms and conditions should be completely clear about what is being provided, what is being paid for and the other terms of sale. You need to describe what will happen if there is a problem. By addressing potential problems, you can save a lot of money and cause trouble later.
6. Initial Contracts and Commercial Licenses
Whether you are into mattresses or microprocessors, you can be sure that there is a regulation that will cover your sector. Therefore, it is important to understand what standards you need to follow in order to stay on the right side of the law.
While applying for a license may be a burden, the consequences of not being licensed can be severe, fines or worse. Your local authority may be able to provide advice (for example, if you are opening a restaurant), and an internet search is likely to provide valuable information on other regulations and licenses that apply to your sector. A lawyer can assist you with filing a license application.
7. Intellectual Property and Confidentiality
Finding out who owns your intellectual property rights (IPR) is paramount to doing business. The value of your intellectual property will likely be the cornerstone of evaluating your business. Whether you are looking for investors or looking to sell, you need to be clear about who owns what.
If you've already hired employees for employment contracts, you own the IPR in what they create. If the technology you rely on to operate was created by a mix of founders, friends, or contractors, then this is a matter of clearing this up or you run the risk of damaging the value of your business.
Finally, make sure your team knows that you value confidentiality. Protect your trade secrets with confidentiality agreements (NDAs) or confidentiality clauses in your employment contracts drawn up by an expert.
8. Data protection agreements
If you process customer data as part of your business, you are subject to data protection regulations (the General Data Protection Regulations or the GDPR).
It can be difficult to navigate the specifics of GDPR, but here are the overarching principles:
- You must register as a data processor or data controller with the regulatory authority (the Information Commissioner) when storing or processing customer data either directly or through subcontractors
- You must notify the regulator immediately if you believe there has been a data breach and information about your customers may have been compromised
- Your contractors need to be bound by contracts that they put on the hook if the data they store about your customers isn't secure
Nick Owens is the PR manager at Harper James Solicitors.
How to start a new business when Covid makes you redundant