Crombie Wilkinson Solicitors

The key legal issues to take you from startup to scale up

Starting any new business comes with a steep learning curve, especially as a founder when you often find yourself wearing all the management hats. This is why it is important to deal with the core legal issues early, so that when the time comes to scale up, your business is ready and in good shape to expand.

‘Carrying out a review of your legal requirements is a sensible place to begin. Then, implementing, referring to and updating a legal checklist will save costs, reduce risk, and free up vital head space for you to work on growing the business,’ explains Isobel Willoughby, a Director and commercial solicitor with Crombie Wilkinson Solicitors in North Yorkshire.

Legal structure and corporate housekeeping

Sometimes there is a misconception that once your legal structure has been set up, there is nothing further to attend to. If you started as a sole trader, you may wish to consider whether this is still appropriate for your ambitions.

As a limited company, corporate housekeeping such as completing resolutions, dividend allocations, income declarations and minutes of meetings are necessary to ensure you are complying with the Companies Act 2006.

One of the items on the legal checklist which startups tend to overlook or elect to bypass at the beginning of their journey, is a shareholder or co-founder agreement. These agreements set out the responsibilities and decision-making rights and obligations of parties, as well as exit and dispute resolution clauses. Having these agreements in place allows everything pertinent to the operation of your business to be put down in a contract and also provides the framework for growth going forward.

They are valuable when you start talking to growth partners, as they provide clarity over key issues, show that you take compliance seriously and have mitigated dispute risks associated with the legal structure of your business.

Trading terms

Once the legal structure is secure, the operation of your business will inevitably require terms of business or other contracts with suppliers and customers. These requirements will vary depending on if your business provides services, products, or both:

product based businesses will need robust terms and conditions in place which comply with consumer laws to govern the relationship with the consumers; and
service based terms and conditions will usually mean putting contracts in place with clients.

Some startups may try to save money by creating their own and using competitor versions as a starting point, but this can be a false economy. Each business has a unique set of risks which it needs to manage, and it is advisable to have solid bespoke trading terms in place from the outset.

A key benefit to having these in place as early as possible is that the terms will also direct the day-to-day operation of your business to be consistent with your terms. For example, if your terms say that you will issue refunds within a specified period of time, then you know you will need to set up reminders on your customer relationship management software to ensure this occurs.

Data protection

Compliance with privacy and data protection regulations is another important area. Founders need to familiarise themselves with initial compliance obligations and ongoing responsibilities.

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