How to avoid a legal battle the smart way

How to avoid a legal battle the smart way

Linkilaw Legal Documents

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 can be 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

The main purpose of the Shareholders Agreement is to provide clarity on key matters that affect all the shareholders, such as:

  • What rights do the shareholders have?
  • When do shareholders need to be consulted by the Directors on decisions affecting the company?
  • Under what circumstances they can transfer their shares to a different person?

A shareholders agreement is a constitution of sorts that maps out the running of a company and how many votes are required to make any decision – either by the shareholders or the board of directors.

Deadlock or termination provisions and procedures to follow in the event of bankruptcy can be included in the Shareholder’s Agreement as well. This document 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.

Copyright:

Copyright is an automatic protection you gain when producing an original work, ultimately preventing others from using it.

In the UK you don’t have to apply or pay a fee as their is not a place to register copyright works in the UK.

You automatically gain copyright protection when you create;

  • Original literary, musical, dramatic and artistic work, including photography and illustration.
  • Original non-literary work, including software, web content and databases.
  • Sound recordings.
  • Film and television recordings.
  • Broadcasts.
  • Layout of published editions of written, dramatic or musical works
Trademark:

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.

Patent:

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.

4. Privacy policy

Business websites will often publicly advertise services and goods for marketing purposes, while tracking certain information about you from your browsing activity in order maintain a competitive edge.

A privacy policy is not only important, it is necessary. Failure to create a privacy policy is illegal and almost guarantees you’ll face a legal battle at some point down the line.

A privacy policy will outline how and why a party gathers, shares, uses and manages a client’s data, whether for personal or business purposes.

Personal data may include a client’s name, address, date of birth, marital status, contact information, financial records, medical history or travel history to allow the business to better understand a client’s personal needs and expectations.

A privacy policy displays to users and potential clients how such information gathered will be collected and stored and whether such information will be released within the business or shared with third parties.

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.

Bottom line

No one wishes for conflict and disagreements, but when doing business, it happens. Make sure you take a proactive approach by having in place all the legal documentation you need to protect you business. Don’t hesitate to get in touch with our legal team.

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