Startups: How to Avoid Getting Sued
In the early days of startup life, the excitement can be unbearable - this is your dream and, yes, it’s really happening. But (this is the boring bit) it is vital not to get too carried away. As any successful CEO, entrepreneur or VC will tell you, legals are the foundation of a thriving company. You get them sorted, you can scale; you don’t, you won’t last long.
As you get bigger, you will attract more and more attention - both good and bad. You will be a target for other businesses and any holes in your legal protection will be scrutinised. This is why your legals are so important.
If you can avoid getting sued your chances of success as a company will be immeasurably higher. And that is where this blog comes in.
For a quick disclaimer, this blog obviously can’t actually prevent you getting sued. But consider it as a route map to get you started. Following these steps will massively protect your business.
This is just as much a matter of business as it is legal sense. Good companies are founded on good contracts. Good contracts lead to good deals. There are a vast number of contracts that you will have to set up in your first few years.
Shareholders’ Agreements, Directors’ Service Agreements, and Terms and Conditions are all ones to get nailed down as you set up your company. As you grow, Employment Contracts and Consultancy Agreements will begin to become important. Then, depending on what your company does, you can think bigger.
But let's take this one step at a time. These contracts are all easy and quick to get in place - but it is vital this actually happens! It is highly likely that, at some point, you will have a disgruntled client/employee/director. If you can point to a valid contract at that moment, that details the rights, obligations and liabilities of all parties, chances are the dispute can be settled quickly, easily and cheaply, with no-one being sued.
Regulations - is there a duller word? Not that we can think of. Annoyingly, however, they are important. They are the rules that national bodies provide to govern your area of work. If you’re in Fintech, get to know the Financial Conduct Authority (FCA). Or maybe, like us, you’re a legal startup? Have a look at the Solicitors Regulation Authority (SRA). Taking on the ad world? The Advertising Standards Authority (ASA) is where you want to turn.
Without the licences and approval of these bodies, your company simply won’t be allowed to function.
There are complexities here and protocols that have to be followed, so do your research. Legal advice is best, but you can do some preliminary work yourself. Give them a call, scan their websites, and look on business forums. Unlike with the contracts above, operating without regulation is likely to be a criminal offence for which you can be prosecuted. Unless your startup is an easy-to-use guide to prison escape, I wouldn’t recommend it.
The long and short of this is that, if you are storing user data, you will need to comply with the national laws that protect that data from prying eyes. With the introduction, in 2018, of the more stringent GDPR, this is an area of law that will be changing over the next few years, so keep an eye on it.
Obvious starting points with data protection are Privacy and Cookie Policies--they will be placed on your website--and registration with the ICO. Again, scanning the ICO website will give you more information to get you going.
Like with regulations above, failure to adhere to these data protection provisions might mean more than a civil claim against you; it may mean criminal prosecution.
4. Intellectual Property (IP)
This is the one everyone knows about - it’s glamorous, it's exciting and it sounds cool. That’s all fair enough - it is an interesting area of law and there are few things more satisfying that being able to place those two letters - ™- next to your name.
Protecting your IP - by trademark, patent or copyright - enables you to protect your brand by preventing others from using it for themselves. It grants you (almost) exclusive rights to market and use the creation. You can protect brand names, inventions, designs of products, and things you write, make or produce (this includes code).
But that goes both ways. As well as protecting your own IP, be wary of infringing other companies’ rights. If you are exploiting another company’s IP without their permission and without a legal defence, they are within their rights to sue you. If you are planning on working with other companies and using their brands, you will need to consult an IP specialist.
In the startup world, IP disputes are common as entrepreneurs compete for ground over their ideas and their brands. Get ahead of the curve by getting yours sorted.
I know - sorry. Tax can feel like a real drag. But--you guessed it--it has to be complied with. Speak to an accountant or tax lawyer, understand the structure and nature of your company, and comply with corresponding tax obligations. Tax can be a drag; fraud can be a bigger one.
This list can’t prevent you getting sued. But it is a starting point. For a startup there is simply nothing worse than being sued - it damages reputation, good-will and, maybe most importantly, bank accounts.
There are so many entrepreneurial law firms in the UK at the moment. They have seen the boom in the startup world and have responded to it with lower prices and transparent approaches to law. Speak to them!
Getting in touch with one of them will provide you with the security you need to grow as a company and to get through those perilous early days. It will leave you with more time to focus on the more exciting things like scaling. Good luck!