Start-Up Survival:Legal Lessons

Episode 1- The Fundamentals

Adrian Corbett

Solicitor

How to deal with legal issues

• Minimal budget for legal advice?

• Be aware of key legal issues

• Tension between rapid progress and safe steps

1. Early Stage: Starting Up, Incorporation etc

• First steps: Confidentiality/Non Disclosure Agreements

• Company structure, with reference to growth and further investment down the line, potential tax implications

• Fundamental documents for private companies:

– articles of association

– shareholders agreement

Overview of Early Stage: Starting Up, Incorporation etc

• Ensuring the smooth running of the business if founding members leave or perform poorly:

– pre-emption rights

– good leaver/bad leaver provisions

– options/vesting of shares based on time spent or results achieved

– non-compete clauses

• What is your planned exit from the business? Do the co-founders agree?

– drag along/tag along

2. Protection of Intellectual Property:

Potential pitfalls of not protecting your IP

• What protection is available?

– patents: will you meet the strict requirements? Where should you register: EU and/or USA?

• Other options:

– trade marks

– design rights

– database rights

– copyright

Protection of Intellectual Property:

• Safely commercialising your rights: licensing

• Avoidance of infringement of other’s rights: who is the rights-holder?

– Text, image, music, video: have you obtained the necessary licences?

– Passing off

3. Up and Running, Avoid the Pitfalls:

• Directors’ duties:

– to act in accordance with company’s constitution,

– to promote success of Company for benefit of shareholders etc

– broader considerations: community and environment

shadow directors?

– Insurance

Up and Running, Avoid the Pitfalls:

• The company is struggling to pay creditors: do my duties change?

– wrongful trading, personal liability,

– Disqualification

• Good corporate housekeeping: recording decisions, board procedure, minutes, AGM’s etc

• Raising investment,

– Are you investor-ready? Ready for due-diligence

4. Health and Safety for Your Website

• Terms and Conditions of use.

• Privacy policy, data protection.

• Potential liability for website content:

– Defamation

– User-generated content

– Infringement of Copyright

– Takedown policy

• Applicability of website Terms and Conditions of UK-based start-up in other jurisdictions

• Your standard terms and conditions:

– Are they clear?

– Are there any unfair provisions in relation to consumers?

• Typical pitfalls for early-stage entrepreneurs in relation to contract law:

– Nothing in writing

– Email communications: has a binding contract been reached? What exactly are the terms?

5. Understanding Contracts, Potential Disputes

Understanding Contracts, Potential Disputes

• You are entering into a major contract, what should you look out for?

– Do you understand the implications of all the terms?

– Dangers:

• unclear, onerous or open-ended obligations,

• minimum period, exit options

• IP rights

Understanding Contracts, Potential Disputes

• How do you get out of a contract if it is no longer working for you?

– Safe termination: notice provisions? Penalty clauses?

– Is one of the parties in breach? Is it a minor breach or a fundamental breach?

– Avoid a claim for damages for wrongful termination.

Understanding Contracts, Potential Disputes

• Debtors - managing cash flow and debt recovery:

– Know your rights: late payment interest on B2B debts

– Your invoice is not being paid, what are your options?

• statutory demand, insolvency proceedings

• Court proceedings

Survival:

• What are the hot legal buttons for your start-up?

– Keep them on your radar at all times,– Take care now to avoid problems later– Problems become a major distraction

• Litigation: if you are successful you may be a target

Adrian CorbettSolicitor

Twitter: @AdrianCorbett

Linked In: http://uk.linkedin.com/in/adriancorbett