It is possible to take a DIY approach when dealing with the legal issues that arise when setting up a business. Entrepreneurs should tread carefully though – both in terms of identifying all the areas that need to be considered and in making sure the position of the business is safeguarded.
Are small business owners keen to call the lawyer?
Does ‘lawyering up’ offer genuine value for money for a start-up or is it an expensive luxury? As with all professional services, this depends on the specific work that needs doing and whether the business has the resources, expertise (and time) to deal with those issues in-house.
Research suggests reluctance on the part of small businesses to turn automatically to solicitors when a legal issue arises. A report from the Legal Services Board and YouGov showed that only 8 per cent of the 9,703 small businesses surveyed had contractual retainers in place with law firms; suggesting the type of arrangement whereby businesses put all legal matters in the hands of a lawyer as a matter of course is relatively rare. The same research also showed more than half of respondents opted to deal with legal problems without outside help. Only 13 per cent thought lawyers offer a cost effective way to resolve legal issues.
Resolving routine problems (e.g. credit disputes with other businesses, employee relations and compliance) is one thing. At the seed stage however, a number of specific and complex matters can arise. Trying to deal with these particular issues without expert input can be potentially very problematic.
Setting up an appropriate structure
What form will the business take? The larger the number of people involved, the greater the need for clarity when it comes to defining the rights and obligations of each of the parties. For many businesses, setting up a limited company is the most appropriate way forward (not least, as a way of limiting the personal liability of the company owners). The formation of a new company is generally a relatively pain-free (and potentially, lawyer-free) process, thanks to the Companies House Web Incorporation Service. The shareholders’ agreement though, is often less straightforward. Will there be majority and minority shareholders? How will their relationship be regulated? What is the exit strategy? Are third party investors involved in the business? Who will represent their interests on the board?
Where there are only close friends or family involved, the temptation may be to reject the idea of professionally drafted arrangements. Beware though: even the closest relationship can be tested under the strain of keeping a fledgling business afloat.
Protecting your ideas
Worried about infringing existing rights with your proposed business or product name? An online trademark search through the UK Intellectual Property Office is an easy and effective way of reducing the risk of inadvertent infringement.
Whereas checking you are not stepping on anyone else’s toes is something you may feel comfortable about doing without legal help, safeguarding your own innovations may be a different story. The protection of designs, inventions and brand ought to be a primary concern from day one. As a recent report from the Intellectual Property Office reminds us, the value of IP is all too often overlooked by SMEs. The same report showed IP protection could give a business a marked competitive advantage when seeking equity investment. Why take any risks with what is potentially your company’s most valuable asset?
Building a team
Taking on an employee is a big milestone for any start-up. The idea of rejecting lawyer-drafted bespoke employment contracts in favour of suitably tweaked standard templates will appeal to many small businesses. Take care to ensure the contract defines your desired employee/employer relationship accurately – and remember that merely lifting a template from the web and putting your company name at the top can increase the scope for disputes further down the line. Special care should be taken with senior and highly skilled employees – especially if you wish to impose non-competition clauses. Imprecise, irrelevant or overly harsh terms will be deemed unenforceable.
Striking a balance
Far removed from the stereotypical image of unscrupulous lawyers fleecing small businesses with high fees for routine work, there are in fact many solicitors’ firms who offer services geared squarely at SMEs – and start-ups in particular. Technology plays its part; with solicitors making available to their clients a host of templates, how-to guides and other resources. The emphasis is on arming clients with the knowledge to do as much as possible themselves – with the fallback of being able to call on help when needed.
It’s potentially the best of both worlds: the reassurance of being able to call on assistance from lawyers covered by professional indemnity insurance for solicitors – along with just the right amount of guidance for up-and-coming businesses to do what they can – when they can.
Bluefin is one of the UK’s leading independent insurance brokers, providing specialist insurance and risk management services to individuals and businesses. It provides market leading insurance solutions delivered locally through a network of 42 offices and over 1400 staff.