11/06/2015

By Stephen Attree, managing partner at commercial and private client law firm MLP Law


Starting up a business is extremely time-consuming and there are a whole host of aspects that need to be taken into consideration. When it comes to the law, there are a number of things that should not be overlooked – otherwise they could end up leading to big problems in the future, and ultimately the failure of a business. Some of the most common mistakes made by business owners include failing to protect their Intellectual Property (IP), failing to get their terms and conditions right, and entering into contracts without fully knowing what they're agreeing to.

Protect the idea

Perhaps one of the biggest mistakes that entrepreneurs often make is failing to protect their idea. During the start-up process, there is lots going on and business owners are often keen to get their idea out there, but may not take the time to adequately protect their IP. On the other hand, it’s important to get the balance right as spending too much time on protection planning can delay getting to market. To ensure that an idea is protected, a non-disclosure agreement and confidentiality agreements need to be put in place between any third parties, such as freelancers or research and developers that are involved. Using a standard agreement will give business owners the rights to all of the valuable IP, including the website, process and source code.

Ensure a good level of risk management

Another issue that business owners often fail to take into account is having a sufficient level of governance risk management. This includes putting together legally-binding contracts between all employees, sub-contractors, and freelancers to, again, protect against the loss of any IP. When signing contracts themselves, business owners need to be clear on exactly what they’re signing up for before making an agreement. For example, they should check that they can exit an agreement if needs be, so they won’t end up getting tied into a contract or lease that they can’t get out of.

Get the T&Cs right

Legal protection in the form of water-tight terms and conditions can cover the business against any potential liabilities, so it’s important to spend the time on getting these right. Policies should be put in place to cover areas such as data protection, privacy and cookie policies and distance selling, especially for businesses that have a website. Without such protection being in place from the outset, the business may struggle to fight against any possible legal complaints.

Take advantage of funding and advice

Aside from the legal issues, businesses should also take advantage of any available funding grants or external advisers. These can be invaluable for the first essential investments such as purchasing or leasing the office space, hiring the first staff members, or reaching out to new business opportunities. When setting up a business, generating funding is a vital process and the company is unlikely to get off the ground if there is no proper strategy in place to support it.

Further to this point, running a business takes up a lot of time and involves lots of different processes. The business owner may not be familiar with, or have much experience, in some areas and so it is extremely beneficial to bring in professionals who have the expertise to carry out these roles. Advisors need to be reliable and trustworthy as they will be handling critical company procedures, so it’s important to for your research on how reputable the professionals you select are.

Have an exit strategy

One of the most common causes of upset within business is the occurrence of a disagreement and this can ultimately lead to the failure of the company. It doesn’t matter who you go into business with – whether it's a family member, friend or an investor – there is no guarantee that you will have the same views on general issues that come with running a business, such as holiday pay and sick leave.

To combat this, agreements should be made clear and put in writing to highlight each party’s rights and obligations when entering into business with investors or shareholders. It’s important to always have an exit strategy that takes into account the possible scenarios of what will happen if the partnership goes well or takes a downward turn and fails. Now is a good time to discuss how potential issues will be dealt with so that all business partners are in agreement if something does arise in the future.

Starting up a business requires a lot of consideration and careful planning. Taking some time to put all of the necessary policies and procedures in place will prove to be invaluable further down the line if issues do arise.