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Taking Stock: time for a legal MOT?

Taking Stock: time for a legal MOT?

by Disrupts MagazineApril 7, 2016

Anniversaries are a good time to take stock of progress. So on the anniversary of the first edition of Disrupts, why not carry out a legal health check on your start-up. It is not always easy to stand back from the daily demand of the business and adopt a more bird’s eye view of all of those things that are important but never quite get to the top of the to-do list. 

So, we have set out below some critical issues you may want to consider:

(1) Shareholders’ agreement These agreements anticipate certain possible key changes and provide reasonable solutions which protect the legitimate rights of all shareholders and make less likely future damaging disputes between them. Some of the key issues addressed in a shareholders’ agreement include decision making, as well as resolving disagreements and deadlocks; regulating the issue and sale of shares; and, protecting minority shareholders’ interests.

(2) Employment contracts and interns Written terms governing your relationship with staff (whether employees, contractors or volunteers) will ensure clarity and reduce the risk of unhelpful terms being implied. For employees, certain terms, like salary, holiday, notice and job title, have to be confirmed in writing. A full written contract that goes beyond these mandatory provisions is essential for the adequate protection of your business.  Importantly, the contract should contain strong, tailored clauses relating to confidentiality, intellectual property, bonuses or incentive arrangements and post-termination restrictions (if appropriate).  Be aware also of risks relating to unpaid interns, who may cause you liability (e.g. for failure to pay the National Minimum Wage), as legal status is determined by the facts rather than by labels such as “volunteer”.

(3) Immigration considerations It is unlawful to employ individuals who don’t have the right to work, or who do so in breach of their conditions of stay. You must carry out certain pre-employment checks and keep a record of having done so.  Generally, UK and EEA nationals can work automatically but non-EEA nationals need an employer sponsor (which you can apply to become). Various visas are available, particularly the Tech Nation Visa Scheme (Tier 1 Exceptional Talent).

(4) Terms and conditions Having made it through your first year, consider the terms and conditions that you adopted at the outset and consider whether they are fit for purpose. Has your product or service evolved such that the original terms are incomplete or no longer relevant? Have you experienced issues or disputes that suggest particular terms should be tightened up or even discarded? If selling to consumers, have you kept up to date with the significant changes in consumer law (e.g. the introduction of the Consumer Rights Act 2015 in October 2015, and the recent introduction of alternative (and online) dispute resolution requirements)? 

(5) Protecting your core assets: As a start-up, you should always have a weather eye on future potential investment. One of the biggest ‘turn offs’ for an investor is when a business is unable to provide evidence that it has all the necessary IP to operate or to protect its position. This includes copyright (including in source code), patents, designs, domain names and trademarks, and registrations of IP where possible. It is also important to ensure confidentiality when you share business information.


Jon Bartley







For more information on each of the topics please see the previous Disrupts articles written by Penningtons Manches LLP at www.disrupts.co.uk/category/law.

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Disrupts Magazine
Disrupts Magazine
Disrupts is a start-up-focused with an edge. Based in London, the team get behind the scenes of the start-up scene.