Starting a business can be exciting and unpredictable. There are new people to meet, money to make and markets to revolutionise. However, one thing every startup wants to avoid are expensive and time consuming legal battles. Litigation is completely unnecessary and totally avoidable.
Listed below are the key legal weapons you can use to defend your business in a legal battle.
1. Shareholder Agreement
This is a private contract between the shareholders of a company and regulates the relationship between shareholders. No two companies are the same. Shareholder’s Agreements vary considerably but each agreement usually describes:
- The corporation’s organisation
- The relationship among the shareholders
- Shareholder rights and obligations
- The management of the company
- How shares can be used and sold
- Exit provisions – to prevent drawn-out and uncertain departures
Deadlock or termination provisions and procedures to follow in the event of bankruptcy can be included in the Shareholder’s Agreement as well. A Shareholder’s Agreement is a vital legal part of company life as it facilitates the smooth running and increased security of a business. It also allows for your company to be more streamlined and attractive to future investors.
The provisions set forth in a Shareholder’s Agreement will protect you against a legal battle and fallouts with your shareholders.
2. Intellectual Property Protection
Protecting your intellectual property (IP) is vital, especially on the startup scene which is renowned for producing new and exciting ideas. IP rights protect the creator’s ownership and include trademarks, copyrights and patents.
A copyright is important because it prevents people from:
- Copying your work
- Distributing copies of it, whether free of charge or for sale
- Renting or lending copies of your work
- Performing, showing or playing your work in public
- Making an adaptation of your work
- Putting your work on the internet
When you register a trademark, you can take legal action against companies or individuals, who use your brand without your permission and attempt to sell and license your brand. Before applying to register a trademark, you should search the trademark database to check if anyone already has an identical or similar trademark for the same or similar products or services.
If you’ve found something similar or identical trademark, you should ask the holder of the existing trademark for permission to register yours. If they agree, you should obtain a ‘letter of consent’ which must be included in your application. If all goes well, your trademark will last 10 years.
You can also use a patent to protect your invention. A patent will give you the right to take legal action against anyone who makes, uses, sells or imports your invention without your permission. You can only be granted a patent if your invention is something that can be made or used and is new, inventive or is an inventive part of a process (i.e. not just a simple change to an existing product or service).
Applications typically cost £4000 and you have to pay to renew the patent each year. You should take into consideration the costs of taking legal action to defend a patent when necessary. Filing for a patent is time consuming- a successful patent application usually takes five years.
Successful startups know the value of intellectual property and using the correct method of protecting products of the mind is key. Securing the protection of your intellectual property properly can prevent future litigation making it necessary to prove that an idea is originally yours.
3. Terms And Conditions
If a customer threatens to take legal action against the company, you can refer the customer to your terms and conditions to make them aware of their rights and whether these have been compromised. They should be essential for avoiding a legal battle.
While there is no set template for terms and conditions, most agreements should include the following:
- A clear definition of what products or services will be provided
- What jurisdiction will cover the contract
- Timelines for delivery
- Guarantees or warranties that may be offered
- The consequences of what should happen if either party doesn’t deliver on its part of the contract
- What is required for either party to be removed from the contract
- Setting out the payment terms, especially when payment is due
Terms and conditions are necessary to regulate the relationship between your company and your customers, ensuring clarity and outlining expectations. With the help of a lawyer, terms and conditions prevent legal disputes which will save you money and time as your business grows and expands.
5. Founders Agreement
Starting your business with a co-founder(s) can give you security during the uncertain beginnings of getting things off the ground. You’ll want to regulate your legal relationship with your co-founder(s) through a comprehensive and personalised founders agreement. Having a founders agreement ensures that your co-founders honour the equity in the startup and abide by agreements that are most beneficial to the business. Most legal disputes that arise between founders can be settled through reference to the founders agreement.
Founders agreements usually include references to founders’ salaries, percentage ownership, the roles and responsibilities of the founders, time commitments and how key decisions will be made. There should also be reference to how these agreements can be changed, if necessary, to ensure a smooth development of the business and your relationship with your co-founder(s).
Just make sure you have this agreement in place as early as possible and you can easily avoid a legal battle by creating a clear and friendly path to success.
Final Words: How To Avoid A Legal Battle
In conclusion, you will need these legal documents in place to protect your startup against easily avoidable legal disputes. It’s understandable why entrepreneurs hesitate to hire a lawyer when starting up a business; it’s generally considered expensive, old-fashioned, and time consuming. However, the legal industry has evolved and modernised to suit the needs of startups so you have no excuse to not avoid a legal battle to a large degree.
Linkilaw aims to provide cost-effective and personalised legal solutions and documentation for startups. We empathise with the needs of startups. If you’re unsure as to what legal documentation you need to protect your startup then book a free Startup Legal Session.
After the call has finished, you’ll know what legal documents you need to protect your startup from easily avoidable legal issues.