As a startup founder, you’re only ever one project away from being sued

From organising your launch party to onboarding your team, starting a new business is often a busy, exciting time.

Every day poses a new opportunity, with much of your headspace occupied with bringing your vision alive. It’s little wonder that legals can be overlooked or drop down your to-do list – especially when everything feels so shiny and optimistic.

But without a well-structured, industry-specific contract in place, you are only ever one project away from being sued.

Getting the legals right in the beginning is key

While we would all like to think that businesses play fair, that sadly isn’t always the case. A handshake agreement simply isn’t enough.

Sometimes, even the most amicable relationships can sour due to unclear terms or a misunderstanding in the deliverables. Elements such as timelines, ownership, payments, intellectual property rights and quality play a large factor in disputes.

No business owner wants to think about their business being dragged into litigation. But, a contract can ease that process. Having no contract at all means that it simply comes down to “she said/they said” – making it a harder job for you to put the evidence together. More costs become an inevitability.

It’s not just about having any contract

It’s about having a well-drafted industry-specific contract. That doesn’t mean to say a template won’t work for you, but it needs to be the right template.

Copying from other businesses without any adaptation or using contracts designed for other industries and from other jurisdictions are common pitfalls.

Laws change from country to country, so using an American contract in England, for example, has led to disastrous consequences for some businesses.

A well-drafted contract should include:

• A clear, concise description of what the deliverables are
• A timeline in which the deliverables will be achieved, and what happens if there are any changes
• Concrete clauses around payment – including when payment is due, interest, bank charges and more
• Definitions of ownership for products, services or both
• Clarification that you are not responsible for third-party software, goods or services, and
• Details of how and where disputes are dealt with

Having these elements in your contract, along with some standardised clauses, will reduce the likelihood of disputes. If problems do arise, you’ll be in a much better position to defend any claim.

Types of legal documents

The type of legal documents a startup will need will largely depend on your industry. However, here are the main ones to guide you:

Client Contracts or Terms and Conditions

If you are delivering a service, you will need either a client contract or terms and conditions. Aside from the all-important elements above, additional clauses will be needed if you are dealing with a consumer. Legally in the UK, you must inform consumers of their rights.

Supplier Agreements

If a business is providing a service to you, they will often provide you with a Supplier Agreement. Time may be precious, but reading these agreements really can make or break your business. Elements such as long lock-in periods and disclaiming from liability, for example, can prove to be a big headache for businesses.

Sub-Contractor Agreement

These are valuable agreements to have and are predominantly used by service-based businesses. If you are sub-contracting work out, you need to ensure that your business has the protection it needs.

Elements such as insurance, intellectual property, qualifications, no poaching and more can be dealt with in a clear way. Liability especially is a very important clause.

Terms of Sale

Terms of Sale – sometimes referred to as Terms and Conditions – are used when selling a product or service online. They must set out, before someone purchases and pays for a product or goods, the terms upon which they are purchasing from you.

When dealing with consumers, the Terms of Sale must inform the consumer of their legal rights, which typically include a cooling-off period when making a purchase from a distance.

Bespoke legal documents or templates?

A bespoke document, when drafted by a professional, can ensure that it works for the unique way you run your business. You can also receive personalised advice and query any clauses. That is not to say that a template doesn’t have a place in the business world.

There are some industry-specific template contracts and legal documents out there, drafted by qualified lawyers, that will give your business the protection it needs and deserves.

As a startup, a lot of blood, sweat and tears has gone into getting your business off the ground. Do not run the risk of losing everything you have worked for by neglecting to put solid legal foundations in place. You owe it to yourself, your backers and your team to do right by them – and your clients.

Kirsty Gibbons, co-founder K&K Legal Consulting Ltd

K&K Legal Consulting Ltd was founded in 2018 by Kirsty Gibbons and Kate Bunn. With 30 years of combined legal expertise, Kirsty and Kate offer legal services to small businesses and entrepreneurs without the constraints of a traditional nine-to-five law firm.

K&K Legal Consulting Ltd