The legal agreements every start-up needs in place before you begin trading
You’re ready to hit the ground running on your new venture. Along with buckets of energy and enthusiasm, you also have a healthy dose of risk awareness. How will you protect your commercial interests as you set out?
That’s our focus for this blog. We won’t look at fundraising or employment contracts here – we’ll look at the key contracts you need in place at the outset, to keep your business healthy and robust as you begin trading.
Issue: Agreeing how your business operates
Contracts: Partnership Agreement or Articles of Association and a Memorandum of Agreement
If you’re the only founder of the business, you can begin trading as a sole trader. But, depending on the size and nature of you’re business, it’s often wise to incorporate your business as a company. That way, the company has its own separate legal personality, which affords you a level of protection from personal losses.
So if you make the decision to incorporate, which agreements will you need?
It’s a legal requirement that you file articles of association and a memorandum of agreement at Companies House. These documents set out how you run the business. They detail how you make decisions in the company, how many directors need to be present at meetings and how to distribute profits (among other things).
You may choose to structure your business as a partnership, rather than a company, if you’re going into business with other people. In that case, while it’s not mandatory to have a partnership agreement, it’s strongly advised that you do.
Without a partnership agreement, your business will be governed by the often archaic provisions of the Partnership Act 1870, according to which any partner can dissolve the partnership at any time. You’re better placed having control over how the partnership ends, and what happens when you want to move on, and you can draft that into your Partnership Agreement.
The Partnership Agreement will give you certainty and control over how your business is run, including how profits are distributed.
However you structure your business, you’ll need governing agreements that align with your goals and expectations for your venture. A professional can help you think through the essential risk areas that you need to cover off in these fundamental agreements, and they can draft the provisions with your best interests in mind.
Issue: Selling to your customers
Contracts: Terms and Conditions, GDPR compliance
You’ll need terms and conditions which govern how you interact with your customers. Your T&Cs cover things like your policy for refunds, the limits of your liability and how far your responsibilities extend to your customer. Have a look at our blog on T&Cs for more information about why they’re vital for your business.
One other prickly area for new businesses is data protection. You’re probably aware of the General Data Protection Regulation (GDPR), but you may be less clear on the way it applies to your business. When you’re handling personal information from your customers, you need to have procedures in place to keep that data private. Another function of your T&Cs is to let customer know how their data will be used, which will satisfy some of your data compliance obligations.
Issue: Trading with your suppliers
Contracts: Terms and Conditions
Separate T&Cs govern your relationship with your suppliers. You should think about what happens if suppliers deliver your goods late, and who bears the risk for goods in transit. The way you deal with those issues can significantly impact your business operations, and your profits at the end of the day.
Issue: Online compliance
Contracts: Website Terms and Conditions, Privacy Notice
All websites need their own terms and conditions and privacy notice to be legally compliant. Again, these terms keep your business on the right side of GDPR compliance, and limit your business to exposure of cyber security attacks.
If your website is more than an online shop front, and you take bookings and payments through it, then you’ll need to bolster your T&Cs to protect your business for online sales.
Getting your contracts right
You can find precedents for each of these contracts, and while a template may be a good starting point, it’s unlikely to provide your business with all the protection you need. You know the ins and outs of your business and a lawyer can help you translate your insight into contracts that stand up to scrutiny, and comply with all the laws and regulations that apply to your industry.
With a lawyer on board from the outset, you’ll not only get robust contracts, but you’ll have a trusted advisor for your business journey. As you expand and grow, you might need additional contracts such as distribution agreements, franchise agreements, and employment contracts, which your lawyer can draft for you with all the benefit of the background information on your business.
Our experts at SME Comply can protect your business with the right contracts for you, and we know the detail of the complex world of data protection compliance. Please get in touch to get your business off to the right start.