Startup contract work: 10 legal tips from lawyers who've been there
Startups have a lot on their plate. Product, sales, hiring and funding all create contracts and admin early on. This guide covers legal points founders should think about and shows how structured contract work can save time as the business grows.
What legal issues do entrepreneurs face early on? Docue was founded as a startup in 2015, and we work with founder contracts, employment documents and other recurring business agreements every day. The early days still come with plenty of hurdles, so we’ve collected 10 practical legal points for startups to consider.
Don't hire a solicitor...yet!
As an early-stage startup it’s unlikely you need a solicitor, yet. While many companies would love to hire a legal adviser on day one, it’s just not financially feasible. You’ll already be juggling product development, hiring, and overhead costs, and the reality is that a startup lawyer just won’t be a top priority.
While there will come a point when hiring a lawyer will become more necessary, for example when raising investment, Docue can support day-to-day contract work before then by bringing lawyer-drafted templates, e-signatures, management and storage into one service. So, what can you handle with a guided contract workflow?
Know your business name from your trading name
What’s in a name? Quite a lot in fact. Not only does a brand name define your business and its image, but there are also a surprising number of legal restrictions to consider when christening your startup. Unbeknown to many, company names, and business names or “trading names” all have different legal statuses. So what’s the difference?
If your business is a private limited company, you’ll need to register a name for your company, or a “company name”. By law, this requires the word “limited” or similar to follow the company name. However, you don’t have to trade under your company name. If you want, you can choose an entirely different business or trading name that’s better suited to your needs.
While company names and trading names have their differences, they do have a few shared legal considerations. When naming a business you’ll need to:
refrain from offensive language;
avoid sensitive words, phrases, or expressions;
ensure you’re not copying an existing trademark; and
ensure the name doesn’t imply government affiliation.
In a nutshell, when the law is involved, naming a business requires a lot more than a catchy title. Not sure whether your business name toes the line? Fortunately for you, you can check out the list of terms best left alone.
Choose the best legal structure for your business
Deciding the structure of your startup can have a number of legal, financial, and governance implications. Certain structures will impact your eligibility for government investment schemes, tax breaks, and other financing avenues. So where should you start? And what legal considerations should you take into account?
While there are a number of different business structures to consider, the most common for startups is a private company limited by shares. So, what are some key legal considerations for a private limited company?
Do you need to keep your company separate from you? Creating a limited company creates a separate legal entity. It can enter into contracts, take out loans, get a credit record and have its own finances, totally separate from your home life.
Private companies can be limited by shares or by guarantee. Shares are typically chosen for a business looking to profit (as opposed to guarantee for a not-for-profit).
A private company can be owned, run, or registered by just one person.
Private companies can sell shares to secure investment.
Private companies are obligated to pay corporation tax on all profits.
Other business structures include:
Sole traders: A simple business structure where the business is owned and managed by one individual, for example, an electrician. There is no separation between the business owner and the business with this structure.
Limited partnerships (LP): Limited partnerships require two or more persons to join forces, but despite the name, do not completely limit liability. This business structure will include at least one individual that manages the business while taking responsibility for the firm’s liability and obligations, while another individual will have invested in the business, but not have taken an active role in the running of the firm and whose liability will be limited.
Limited liability partnerships (LLP): This business structure requires two or more individuals to form its structure, and comes with a number of tax benefits. However, this type of business structure can’t receive investment in exchange for part ownership in the business. It is, however, an entirely separate legal entity from its owners, similar to a limited company.
Protect your business assets
Intellectual property is one of the most valuable assets a business can control. Despite this, many startups fail to adequately protect their ideas, forgoing the importance of non-disclosure agreements and well-defined employment contracts. Let’s say you hire a top-notch consultant web developer who works with you to evolve your core offering. Have you set out in the terms of the consultancy agreement that all IP created belongs to the firm? If not, you may run the risk of failing to protect your business assets.
Make sure you have these essential legal templates
It’s sad but it’s true: the early days of a successful startup involves a lot of paperwork. At Docue however, we’re determined to make the early days easier, which is why we provide the essential legal templates you need within our platform. These include:
UK GDPR Privacy Policy/Notice;
UK GDPR Cookie Notice;
UK GDPR Data Breach Policy;
UK GDPR Data Processing Agreement;
Supply of Services Agreement;
Have a contract negotiation system in place
Mastering the art of contract negotiation is a tricky business and it’s often where having an experienced legal adviser comes in handy. Not only is it important to consider how to get the best deal for your business and shield it from overly burdensome obligations, but it’s also crucial to understand when and how to get out of a contract if the need arises. Think your negotiation skills need some polishing? Check out our contracts negotiation article to get the inside scoop.
Create high quality employment contracts
Great teams have the power to propel a business forward, while a mismanaged hiring strategy can be a recipe for disaster. So how can you set your startup up for success? Growing a reliable team requires legally compliant foundations, including fit-for-purpose job offer letters and robust employment contracts. It’s crucial startups take the time to consider the legal rights, conditions, and obligations that come with hiring staff. A job offer letter will allow a startup to begin professional relationships on the right foot, while a well-drafted employment contract will allow the business to clearly define expectations, ensuring the relationship is commercially sound. With Docue, start-ups can create, customise, e-sign and store offer letters and employment contracts in one workflow so they can execute their hiring strategy with speed and accuracy.
Do data protection right
The importance of a robust data protection strategy can’t be understated. With the threat of UK GDPR fines and unhappy customers, it’s really a no-brainer to look after the data you collect, store, and send. While the scope of data protection is quite broad, the majority of businesses will need to have a website privacy policy and an employee privacy policy. It will also need to hold some records of its data processing. Despite this, the demands of data protection will require a bit of thought, which is why we’ve put together an in-depth article on Data Protection Policies. Plus, the Docue platform provides startups with the ability to create and tailor all of the key data protection policies and notices they need when starting out, so try not to worry too much!
How to plan legal spend
The average costs of hiring a startup lawyer in the UK vary wildly, depending on the nature of the work you might need, and the experience level of your startup lawyer. Hourly rates change depending on whether your legal partner is a trainee solicitor, an established lawyer, or an industry-renowned senior.
Depending on the firm you choose, you can expect to pay anywhere from £186 to £512 an hour, according to the Gov.uk’s most recent figures. However, you can expect these rates to increase depending on a number of factors including:
whether you’re a regulated business;
whether your business needs bespoke documents and expertise.
If you use an external law firm, it is usually worth agreeing a fixed fee or a capped fee for each piece of work. That makes the cost easier to predict. For recurring contract work, a platform like Docue can help keep drafting, signing, management and storage in one place. Startups can work from lawyer-drafted templates and use guidance in the product, while reserving external solicitors for matters that need bespoke advice.
When should a startup hire a solicitor?
For an early-stage startup, an in-house lawyer is a bit of a luxury. While legal support for startups is an important part of survival, sometimes it’s just not realistic to hire a solicitor when other areas of the business require funds.
For early contract work, you have options. You can handle simple company admin internally, use a solicitor for bespoke questions, or use a platform like Docue to draft, sign and manage recurring business documents with lawyer-drafted templates and product guidance.
Building a startup should be one of the most exciting times in your career
And yet, it’s easy to get bogged down in paperwork, legal obligations, and the expense of hiring a lawyer. Fortunately, you don’t need an expensive legal adviser to get your business off the ground. You do, however, need to build legal foundations that adequately protect everything you’re trying to build. That’s why we’ve built a platform that allows growing businesses to create, customise, sign, manage and store the key legal contracts and documents that a startup needs.
Ready to build long-lasting legal foundations?
Check out what Docue can do for you.
Docue Legal Team