Legal Essentials for StartUps: Expertise from Michael Buckworth

Michael Buckworth returned to the Club Workspace venue at the Leathermarket for Dreamstake’s event, and gave the entrepreneurial audience a comprehensive introduction to startup law.

Our old friend Mike started out by explaining what exactly a lawyer did. He explained that a lawyer makes things more feasible, they reduce the risk to your business, and they arm you with a knowledge of legal practices, and malpractices!

If you’re a Tech Startup...

After a quick straw-poll, Mike realised that the preponderance of his audience were tech startups. Therefore, he ran through a few case-study-esque examples that were relevant to tech startups.

If you’re website requires a subscription fee, you need to research payment collection law. What happens if users want their money back? What is the procedure if one of your customers claims to have inadvertently paid for your service - if their card was stolen, for example? You need these eventualities to be covered.

If you’re a tech startup who has freelance developers working for you, ensure that they have signed a document that transfers all of the rights to the IP that they create over to you, as otherwise they will legally be the owner of the created IP. Find out more about that here.

Mike said that many startups ask for 'the shortest legal document possible.' In these situations, he asks for your patience, and to accept that legal documents are long for exceptionally good reasons. If a lawyer ever agrees to condense a document for you, just think about what you could be missing.

To USA ex-pats, Mike stressed that the documents that you receive in the UK will look and read quite differently to your native papers. This is because the law is very different, and has evolved in a different judicial and regulatory system. Please don’t be alarmed.

Business Structures

We won’t go through business structure options in too much detail in this blog as Ben Sheils gave us a comprehensive guide to those last week. However, he cleared up the differences between two Ltd company models.

Most Ltd’s are 'limited by shares'. These are the 'better' model in Mike’s opinion as they are easier to invest in, easier to transfer and, overall, they’re an easier ship to sail. Another Ltd model is 'limited by guarantee'. To startup a company that is limited by guarantee, each founder needs to put forward a financial guarantee (in pounds) - by doing this, they 'guarantee' that if the company goes bust, they will pay the predicated amount of money.

Another model is an 'unlimited' company. This means that the business owner is liable for the business. If it goes bust, the owner goes bust.

Data Protection and Cookies

Michael has previously delivered a hugely conclusive workshop on Data Protection, and he reapproached the subject on Tuesday night.

He explained that every startup will need a privacy policy, as otherwise they will leave their ranks open to easy fire due to the Data Protection Act. Please click the link above for an in-depth look at DP.

Mike spoke about cookies, as the EU has recently passed legislation that effects the web-user/cookie relationship. Cookies, in Mr. Buckworth’s words, are 'bits of code that sit on your hard-drive and record info.' If you type in your address, it remembers your address. If you search for 'Football Kit', it remembers your searchwords.

How will the law effect English tech startups? It won’t do much, Mike thinks. Cookies are essential to the smooth running of the internet, in-toto so noone will disrupt their usage, as doing so would jeopardise the entire e-ecosystem.

Terms and Conditions

Terms and conditions are essential for your startup as they are the legally-binding statements that lay-down what your users can and cannot do. They are the rules when you’re at the point of law. Therefore, when you’re creating your T&Cs, make sure every single eventuality is covered. Long documents may be good documents in this case.

To illustrate his point, Mike offered this example: if users are allowed to post comments on your site, you need to write T&Cs about what can and cannot be shared. You need to put in-place a 'flagging' procedure for inappropriate content, and detail this in the T&Cs, too.

A very interesting and important thing to note about T&Cs is that if they aren’t written in 'plain English', then they are not legally binding. You are not bound by Terms and Conditions that use arcane 'lawyer-speak' like 'heretofore', or 'party of the second part.' A useful legal fact to have in your armoury.

Customer and Supplier Contracts

When you draw up your customer or supplier contracts, ensure that they cover: getting paid, limiting liability and the termination of the relationship.

If there’s nothing written in your contracts that explains that you’re allowed to terminate a relationship, you are not allowed to get out. You will be locked-in for a certain amount of time, with no hope of recourse. This could be a costly oversight!

Employees and Interns

Again, Mike has gone into fantastic detail on this subject before, so please click this link to find out about the law surrounding employees, freelancers and interns.

A new nugget of info that Mike threw to the audience on Tuesday was that if you don’t have a document that details what your interns will 'learn' during their tenure at your business, then you could be in trouble. If you have this document in place it reaffirms, in law, that what your offering is a bona-fide internships - a placement that possesses some eduction benefit for the incumbent - rather than an employment position that does not comply with Minimum Wage Law.

Shareholders Agreements

This is, perhaps, Mikey B’s favourite subject. To boil his usual (and extremely helpful) schtick down: Put a shareholders agreement in place early on - if not straight away, then when you’re trading, and can afford one - as they make things a lot more easier when it comes to exiting. Contact a lawyer about a shareholders agreement comparatively early-on in your startups life, as it’ll be easier to decide what happens upon exit when you and your cofounder are living off baked beans and economy teabags, than it will be when your startup is turning over a cool million every quarter.

Legal Advice

As a parting word, Michael asked that if you need legal advice, please talk to a lawyer. They won’t charge you for a quick phonecall to clarify a few issues, at least he won’t. Don’t accept legal advice from ‘that guy who knows it all’, as he probably doesn’t know as much as a lawyer and - in the unlikely event that he does - his advice doesn’t need to be right, whereas a lawyer’s does. If they give out bad advice, you can sue the pants off them. Lawyers have huge indemnity insurance packages in place as their entire business model is advice-based! Ask them, not 'that guy'!

Thank you to Paul and Marina from Dreamstake for hosting the event, and to Mike - of course - for delivering such world-class advice.