Frequent Legal Risks to Avoid When Running a Startup

Editorial Team

Legal Risks to Avoid When Running a Startup

Not all aspects may run smoothly if you are running a startup business in the United Kingdom. There are a few legal risks to be aware of if you aim for continued success. Online legal documents can assist you incredibly if you are concerned about potential legal risks, but which risks are the most common for startups? Consider these nine examples of legal risks to avoid when running a startup.

Which Legal Documents Are Important when Running a Startup Business?

The most important legal documents to establish when running a startup business include nondisclosure agreements, employee contracts documents and founders or shareholder agreements.

A nondisclosure agreement is a deterrent for confidential information disclosure; employee contract documents ensure that you and your employees understand their duties and responsibilities, and shareholder agreements establish your shareholders’ rights and obligations.

Which Frequent Legal Risks Should You Avoid when Running a Startup?

The list below features nine common legal risks you must avoid when running a startup. Read on for all the essential pitfalls.

1.    Choosing not to appoint a lawyer or get the correct legal counsel

While you may think that getting the correct legal counsel is not as crucial for startups as it is for large enterprises, this approach is a common legal risk. Legal issues can arise even before you scale the business. If you don’t appoint a lawyer for your affairs ahead of time, you can encounter expensive issues, so always get legal counsel before launching a startup.

2.    Establishing ineffective contracts with vendors

Indisputable contracts are vital if your business involves purchasing materials or goods from vendors not part of your organisation. The contract should establish the expectations and rules for your purchase and can prevent any miscommunication or legal issues. Always create a legally-binding contract before you work with outside vendors.

3.    Selecting the incorrect business structure

It is essential to select the correct structure for your business, so knowing the main types of business is essential.

From sole trader businesses to partnerships, limited companies to limited liability partnership businesses, each has advantages and disadvantages. For instance, you will keep all your profits with a sole trader business but may find it difficult to get financial backing.

4.    Having a misalignment between terms and conditions and customers’ agreement

You may encounter potential lawsuits if you do not have a terms and conditions agreement on your company website. For instance, a customer may be unclear on their rights to refunds from your company, become a defendant and attempt to sue your business.

On your terms and conditions agreement, ensure you include a checkbox your customers can select before purchasing your business.

5.    Failing to establish a privacy policy

Legally, you must establish a privacy policy to tell your customers which of their data you can share. You may collect customer data and share this list with other companies; if you share this list, you are legally obligated to inform your customers.

6.    Forgetting to observe tax laws for businesses

You must be familiar with tax laws for businesses and pay attention to them when running a startup. For instance, it is fundamental to know whether your business must pay VAT taxes or when to file your business tax returns. If you are unclear on tax laws for businesses, make sure you get the correct assistance from a business accountant familiar with these laws.

7.    Forgetting to obtain the correct documentation for your employees

Litigation with employees can easily damage your company financially if you forget to obtain the correct documentation from them.

For instance, you may encounter legal risks if you fire an employee and do not handle the termination properly or document the process. It is always best to warn employees if they have performed poorly and create documentation that details the warning to avoid litigation.

8.    Failing to obtain nondisclosure agreements

Your company will have proprietary information, such as a list of customers or tactics unique to the business, that you may want to keep confidential – this is why nondisclosure agreements are fundamental. With a nondisclosure agreement, you can legally bind employees to the promise that they will not disclose proprietary information about your business.

9.    Proceeding without a patent or trademark

The law will work against you if a rival company takes an unpatented or untrademarked name or product. Ensure you learn the legal difference between protecting physical products or ideas and assigning the correct patent or trademark.

For instance, getting a patent or copyright for an idea is impossible, but you can get copyrights for creativity, products and inventions.

Running a Startup Without Legal Risks: Key Takeaway Points

Running a startup can be challenging, and without the correct legal knowledge, you leave yourself open to legal risks. The key takeaway points to remember is that legal documents can help mitigate legal risks, as can a thorough understanding of the law and taxation requirements. Keep this article’s nine common legal risks in mind to avoid legal risks when running your startup.