Going it alone: does a start-up require a lawyer?
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
