So having undertaken the “idea” creation and evaluating its viability (if only in theory) it is time as an entrepreneur to move onto the next stage. You must now take that million pound “idea” and make it into a proper business proposition, prove that the concept works, marshal your resources, get investment, scale up and, of course, who can forget make those millions…
But before you do all that it’s time to think of the dreaded and boring “legals”. This is the time you should be moving away from downloading forms you have found on the internet or reusing documents someone else has sent to you on another project or even just copying and pasting from other people’s website. Google as it turns out is not always your friend.
This is the time most new entrepreneurs make their first critical mistake. They take the shortcut on the “legals”. The old adage that you ‘either pay now or you pay later’ has never been more accurate. There is nothing quite like making your first millions, only to find your legal documentation is in such bad shape that that those millions translate to something more pedestrian.
So, let’s break down how to start a business from a legal perspective and then we can go into what you, as an entrepreneur, should be thinking about to avoid some common mistakes at each of those stages.
Arguably, there are seven steps we need to think about (though frankly I suspect I will add more along the way), namely:
- Incorporation of an entity
- Choosing a Name / Brand
- Getting Online (assuming you are a tech or online commerce business)
- Data Protection
- Building Your Team
- Protecting Your Idea
- Doing Business
Part 1: Incorporation
This bit always feels like the fun bit, you incorporate a new company at Companies House and start giving shares away as though they are going out of fashion. You are a founder, a director and a shareholder and you give yourself a fancy title, as this is after all a proper business now.
Let’s take a step back however… the first question you must ask, before you do any of the above, is: What is the correct vehicle for me? Is it a limited liability company, is it a private one or a public one? Is it a partnership and is that partnership a limited liability partnership or a general partnership? The object of this article isn’t so much to go into the pros and cons for each, but merely to offer some unsolicited guidance. So, whilst speaking to your lawyer is always diligent…first things first… speak to an accountant…at the end of the day it all comes down to the efficient extraction of money from the business.
Once you have the accountant’s advice tucked under your belt instruct then your lawyer to set up the relevant entity. Start discussing shareholders agreement for companies and partnership agreements for partnerships. These documents (which are private contracts between the individuals concerned) whilst key are complimented, in the case of companies, by the constitutional documents (i.e. the articles of association) which are also important!
The importance of these documents cannot be overstated. They control the functioning of the entity as well as the rights and obligations of each founder or stakeholder. The contents of these documents will set the rules of how the business will grow in the coming years as determining who has a say in that.
Further advice on the next steps will follow in the next article in this series.
Contact our Corporate & Commercial Team
If you are an entrepreneur and would like help with the legal aspects of a start-up or if you have any general queries and need a helping hand to guide your initial steps, please contact Michael Kashis in the Corporate & Commercial team or call on 020 7631 4141 and ask for a member of the team.
The above is accurate as at 21 October 2022. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.