Tech City: top 3 legal issues start-ups should consider at the outset

I got to see the latest developments in EC1 by attending the Tech City Intro event organised by Tech Connect.

The event included tours of WeWork Old Street and Cocoon Networks co-working spaces, which are home to many inspiring start-ups.

We were introduced to and heard presentations from:

1. one of the founders of Kraken IM, a start-up building data exchange platforms and tools for the engineering and construction industry;
2. VP of Commercial Operations at AVORA, introducing AVORA's augmented business intelligence platform providing businesses with real-time market data analysis and anomaly detection alerts; and
3. a director at SwiftScale, who introduced SwiftScale which facilitates corporate-start-up collaboration through exclusive fixed-term programmes.

It was noted during the discussions that one of the challenges for start-ups are obstacles caused by not dealing with potential legal issues in the early stages.

Having a viable business plan and securing the required investment and partners are essential for the success of a start-up. However, many start-up businesses often overlook the importance of planning for potential legal issues, which could significantly stall the business in the future.

Below, I set out the top 3 legal issues which start-ups should consider at the outset.

Have suitable agreements in place to protect your business interests

As your business relies on its assets, key personnel and trading relationships for its success, you should make sure that you have suitable agreements in place at the outset and going forward:

• between the shareholders or partners;
• with key personnel (for example directors’ service contracts); and
• with your suppliers, consultants, customers and employees (such as suitable terms and conditions of business, collaboration or consultancy agreements, confidentiality agreements, employment contracts, etc).

Lack of suitable agreements to regulate the relationships between various stakeholders in your business could lead to inability to enforce your rights, claims against your business, legal disputes, company or personal liability and potential loss of the company.

Understand the implications and plan for changes to your share capital

Most start-ups operate as a private limited company with share capital. As start-ups seek investment and grow, this usually leads to changes to the share capital of the company. In order to protect your founder rights and minimise any future legal issues, it is important to (i) understand the legal and tax implications of any share capital changes and how they affect your rights and (ii) have suitable shareholders agreements in place to deal with such arrangements and changes.

Protect your intellectual property rights

Start-ups will create and use intellectual property (IP) rights – copyrights, trade marks and patents. IP rights are usually the key assets of a start-up. Without comprehensive IP rights protection businesses and individuals could lose the value of their most important asset and could even be liable for infringement of the IP rights of others. You should:

• seek legal advice at an early stage to ensure comprehensive understanding of your IP rights and how to effectively protect them;
• ensure you own the IP rights in any works commissioned from consultants and freelances;
• ensure you have a suitable licence to use any IP rights which you do not own;
• consider registering your IP rights where possible; and
• take precautions about disclosure of your trade secrets and/or confidential information (such as confidentiality or non-disclosure agreements with developers, consultants, partners, etc).