Starting a new business is an exciting journey filled with potential and opportunity. However, amidst the excitement, many entrepreneurs overlook crucial legal and contractual considerations. These oversights can lead to setbacks, delays, financial losses and, in the worst case, the failure of the business. As a leading law firm in South Wales, specialising in helping start up businesses form, develop and grow, we have highlighted some common trends and patterns in the mistakes new businesses make when starting out and what you can do to prevent them.

Choosing the wrong business structure

In the UK, there are a range of business structures to choose from. Some typical examples are sole traders, partnerships, limited liability partnerships and incorporated companies (although there are further choices). There are pros and cons to each structure, but one of the most common mistakes we see is individuals operating as a sole trader or partnership in order to “save money” on the administration costs associated with companies, without considering the advantage of having limited liability and protected personal assets in the event of business failure.

Our tip: Speak to both a lawyer and an accountant at the outset in order to understand the legal and tax basis for choosing a business structure before making an informed decision.

Not registering your name and/or your brand

Your business name, your brand and your logo are what identify your goods and services from that of your competitors. It is where you generate goodwill, which increases your business value and reputation. It is a common misconception that owning a domain name gives you the exclusive right. The only way to truly protect your branding and goodwill is by registering a trade mark.

Our tip: Make this one of the first things you do. As your business grows, this will remove the risk of other businesses trying to “piggy back” on your success. We have seen examples where businesses have had to rebrand as they failed to register a trade mark to protect their brand.

Overlooking Intellectual Property (IP) within the business

IP is often the bloodline of any startup and many businesses fail to protect their IP early on. This can result in losing the rights to their ideas, branding or innovations. We touched upon trade marks above, which is one type of intellectual property, but other protection is available in the form of patents, copyright, design rights and confidentiality.

Our tip: Conduct an internal IP audit in order to identify all forms of IP within your business and then seek the relevant protection in your commercial contracts.

Not complying with data protection 

When GDPR came into force a number of businesses were caught out and didn’t realise how non-compliant they were with relevant data protection laws. All data must be handled in accordance with the relevant data protection laws. As a start up you are in a unique position to make data protection compliance a key pillar of your business. Ensuring you have the basic policies in place that relate to privacy, retention, data breaches, data security, amongst others will set you off in the right direction and ensure compliance going forward.

Our tip: Understand from the outset the type of personal data you are seeking to collect, why you need that data, how you use that data, if you send that data to any third parties and what you do with the data once you no longer need it.

Not putting agreements into writing

Whilst it is true agreements don’t need to be in writing, informal arrangements and handshake deals can lead to disputes and arguments down the line, as there is often a lack of clarity over the key terms of the transaction.

Our tip: Written contracts can make life much easier if they clearly set out the rights, obligations and responsibilities of all parties involved. If you are in a situation where an initial contract has been made verbally then follow it up in writing and ideally have it signed by both parties. 

DIY Contracts

Contracts with customers and suppliers are essential for defining the terms of a business and protecting the business from potential disputes. While it may seem cheap and easy to steal a competitor’s terms or try and write them yourself, how do you know if the terms are correct? What key clauses have been omitted? Are they even applicable to your business?

Our tip: Don’t skimp on this! Take legal advice and ensure your terms are tailored both legally and commercially to the unique challenges that face your business! Badly written contracts increase your risk and exposure and could ultimately cost you money which could have otherwise been avoided.

Neglecting employment agreements and other related documents

Yes, this article has been written by commercial lawyers who don’t advise on employment law, however, what we do know is that as your business grows, you will likely need to take on staff. At this point, it is necessary to have the correct agreements in place to protect not only the interests of your business but also the interests of any employees.

Our tip: Make sure these agreements  are set-up before you start hiring to ensure cover for all parties’ rights as and when it comes to needing staff. If unsure, speak with a HR Consultant or employment lawyer. Great employment contracts can help build a great culture.

Inadequate document and filing systems

Like date protection compliance, having in place an accurate and straight forward system to keep records can assist your business and make it easier to track ongoing transactions and historical matters.

Our tip: There is a variety of software out there designed to help businesses, take your time, do your research and understand the benefits of each before making a decision and investing your money.

Ignoring legal problems

Starting a business will throw up legal challenges. It is possible to avoid these problems from spiralling into larger issues by tackling them directly. Don’t bury your head in the sand or leave it until another day. It’s highly unlikely that they will just “disappear” and without action could worsen, making them harder to deal with.

Our tip: Tackle legal issues as soon as they arise and don’t let it spiral into something bigger than could have been squashed at the outset. If unsure, take legal advice. Dealing with any challenges head on gives you the best chance at overcoming them.

Lack of legal counsel

We know lawyers can be expensive, but they are vital to the success of a business. The legal advice received at the point of forming a business could significantly impact its future and growth. Investing in legal advice at the outset will save you money in the long term.

Our tip: Seek appropriate legal advice from Berry Smith. With legal experience, as well as business expertise, a commercial lawyer can prove a valuable part of your team.

Conclusion

Legal and contractual oversights can pose serious risks to a new business. By taking proactive steps to address these common pitfalls, startups can build solid legal foundations that supports growth and mitigates risk. Seeking legal advice, investing in proper documentation and staying informed about obligations, are crucial for any business aiming to establish a successful and sustainable business.

Berry Smith are experts in commercial law and highly experienced when it comes to working with startups and helping them grow. If you would like to discuss your legal requirements in further detail or if you have any questions please contact us on commercial@berrysmith.com