Jacob O’Brien is a solicitor specialising in commercial and intellectual property issues with leading North West law firm Brabners.
Here he offers advice on protecting your business.
Top 10 Tips For Protecting Your Business
There are many pitfalls that can scupper a promising young business before it has managed to get off the ground. Working with and advising many SMEs and startups in the North West, I’ve seen how important squaring away the little details is in the long term. Here are the ten things I think a business needs to get right from the start in order to reach its potential.
1. Ensure ownership of your intellectual property.
In most cases, intellectual property rights in a creation lie with the creator, rather than the business that paid for it (this is not the case for creations of employees, which are owned by their employer). That means that if you, as a business, pay a contractor or consultant to create something (for example designing a new logo or developing a piece of software), you may not automatically have ownership of any intellectual property created. This often causes issues down the line when you discover you don’t actually own a key part of your business’s USP. Make sure you stipulate in written agreements with contractors and consultants that you will own any IP they create while working for you.
2. Protect your brand.
Trademarks are essential and something businesses should consider early on. A trade mark stops others from using your brand and can give confidence to investors. Trademarks only protect your brand in the classes of goods and services for which the trademark is registered – something to consider if your business is likely to expand its areas of operation in the future.
3. Retain a majority share.
In the early stages when cash flow is key, paying employees or consultants in shares can be an effective way of incentivising the people you need to drive your company forward. However, business owners need to be careful that they don’t dilute their shareholding too much. This is especially important if seeking investment. Owners may find that, between employee-owned shares and investors, they have been unwittingly marginalised in their own company, no longer holding a significant stake.
4. Be aware of your data protection obligations.
Any information on employees or customers that you collect is your responsibility. In May 2018 the EU General Data Protection Regulation comes into force, stipulating fines of up to £18m or 4% of turnover for some regulatory breaches. Even with Brexit on the horizon, this law is likely to be incorporated into UK law for the foreseeable future. From day one, you should ensure you comply with data protection laws to avoid potentially crippling fines and reputational damage. TalkTalk, Yahoo and Tesco Bank are cautionary tales of brands whose reputations have been tarnished by data breaches.
5. Make sure you get paid.
A steady cash flow is vital to a fledgling business, so making sure customers pay you on time is crucial. Written payment terms are an absolute must, but businesses of all sizes should also have a payment enforcement strategy in place. This covers internal methods for chasing debts and knowing when to consult debt collection services or a solicitor for advice. Practically, having a payment-on-account policy for full or partial payment before services are rendered is a good way of avoiding lengthy debt collection procedures.
6. Implement retention of title clauses.
If you sell goods, a retention of title clause is an excellent way of protecting your business from customers who fail to pay you. A retention of title clause means that you retain ownership of any goods until the recipient has paid for them in full. It is important that you retain the right to enter the customer’s premises to repossess any items that have not been paid for.
7. Enforce confidentiality agreements.
There are laws that cover confidentiality to an extent, however they can be uncertain and may not go as far as you need them to. Written confidentiality agreements with customers and suppliers, and confidentiality clauses in employment contracts, will protect sensitive information from leaking out into the public domain. A basic confidentiality agreement for customers and contractors is an inexpensive precaution that will help to protect your business.
8. Be wary of giving away exclusivity.
It can be tempting, as a young business, to give away exclusive rights when your first few customers come knocking. Be cautious when considering giving away exclusivity - will the product or idea be useful or have potential value going forward? If, for example, a tech business gives away exclusivity to a piece of software, the tech business will not be able to white label that software and sell it to other licensees. If you do decide to give away exclusivity, make sure you are very specific about what any deal covers and ensure sure you are paid handsomely for doing so!
9. Put in place restrictive covenants.
It’s a fact of life that, at some point, employees will leave your business unexpectedly. Having restrictive covenants written into your employment contracts will stop ex-employees from poaching other clients or taking advantage of business-critical information when they leave the business. You should note that restrictive covenants can easily be deemed to be unenforceable. If the restriction goes too far, it can be unapproachable as a restraint of trade – you should therefore take specialist advice to decide on their length and scope.
10. Find the right workspace.
It is likely that one of your first major expenses and decisions will be sourcing and fitting out office space. Businesses do a lot of their fastest growing in the early stages of their development so getting tied into a long term lease in a space that you might quickly outgrow is often the last thing you need. When starting out, consider flexible arrangements such as incubators or co-working spaces that won’t demand that you sign up to a five or ten-year lease.