Jason Greenberg, Corporate & Commercial Partner
When you think of a start-up entrepreneur, do you imagine a hip, casually dressed 24-year-old? Unencumbered with family and mortgage commitments, allowing them to work 100-hour weeks, living on green juice and sleeping in hammocks swinging in their trendy office in Shoreditch? If so, you are not alone. This image of today’s entrepreneurs is well entrenched in our culture.
However, it is wrong. Despite Mark Zuckerberg’s comment that “young people are just smarter” (it seems ageism in tech is another thing people can blame Facebook for), studies show the average founder age of the fastest growing tech start-ups is 45 years old. Furthermore, 50-year-old entrepreneurs were about twice as likely to develop a massively successful company compared to their 30-year-old counterparts.
Looking at the situation logically, it is no surprise that good things come to those who wait. Those who are in their 50s and 60s when they take the plunge into self-employment have had decades to build up management, sales, and financial capital – all crucial elements of a successful start-up. Long careers also provide time to build up valuable contacts, an often-neglected component of getting a new business off the ground.
It seems that venture capitalists favour investing in companies headed by the young. One reason may be that the investor is able to secure a greater share in the company that way. Therefore, older entrepreneurs are left with raising funds via releasing equity from their homes, transfer valuations from final salary schemes, and cashing in private pensions early. The upside of this is the shares remain undiluted, as does control of the business.
Legal matters to consider when launching a start-up
Thanks to their experience and knowledge, entrepreneurs in their 50s and 60s (and older), take more care in setting up the correct business structures, therefore, making the venture more attractive to lenders and investors.
Key aspects any business founder needs to consider include:
- The legal structure of the business
- Commercial contracts and terms and conditions
- Intellectual property
- GDPR compliance
Let’s look at these in detail.
Legal structures
One of the first decisions to make is the legal structure the business will take on. For example, will you set up as self-employed, as a traditional or limited liability partnership, or a company? Each has its own advantages and disadvantages, for example, as a self-employed person, apart from basic book-keeping, the extent of administration is often limited to the filing of a tax self-assessment once a year. But with companies and LLPs, there are strict legal requirements around the filing of accounts and other statements at Companies House and company directors must abide by the directors’ duties set out in the Companies Act 2006. Taking professional advice from an accountant or solicitor prior to launching your business can save a lot of time and money in having to choose another structure at a later date.
If you do choose to set up a partnership or company, it is important to have a Partnership/Shareholder Agreement drawn up. Not only will these documents set out the obligations, rights, and duties of each partner/shareholder, it will contain a comprehensive dispute resolution section, setting out how disagreements should be dealt with. This can save enormous amounts of time, money and stress as nothing will damage your business faster than a dispute left to run out of control.
In the case of a traditional partnership, an agreement is even more imperative as, without one, your business will be subject to the principles laid down in the Partnership Act 1890. Drafted in the Victorian era, this Act is not designed to cope with modern 21st-century enterprises. For example, under section 26 of the Partnership Act 1890, any partner can dissolve the entire partnership by notice to the other partners with immediate effect at any time. If this occurs, the partnership’s assets must be realised, its liabilities must be paid, and any surplus returned to the partners. Worse still, under section 33, a partnership is automatically dissolved if one partner dies or is declared bankrupt. To protect your business, its employees and suppliers, a Partnership Agreement setting out what should happen if one partner decides to resign, becomes mentally incapacitated or dies, or is declared bankrupt, must be clearly drafted,
Commercial contracts and terms and conditions
Having well-drafted commercial contracts is essential to any business. Not only do you need to have clearly drafted contracts between you and your consumers and with your employees, you also need to negotiate contracts issued by those who supply your venture.
Terms and conditions set out how you trade. They let your customers/clients know how and when they can cancel your product/service, your delivery and invoicing terms, and in the case of software and IT, how it is licensed, serviced, and updated with new versions. This list is not exhaustive; your terms and conditions will greatly depend on the sector you operate in. Remember, it is your business and (within the limits of the law) you choose your terms. Make sure the terms work for you.
Of course, it is relatively easy to find examples of commercial contracts and terms and conditions online. However, you risk not having them constructed in a way that benefits you and your interests. Or, you set up your contracts so they benefit you too much. In the words of business writer Robert Ringer, “you can draft a contract two-feet thick, but the reality is if you manipulate the situation in such a way that it ends up being an onerous deal on the other party you’ll only succeed in buying yourself a lawsuit”.
Including terms which are so unreasonable to the other party can make the contract unenforceable in some circumstances. Investing in expert advice ensures that your commercial contracts and terms and conditions protect your interests and provide value for everyone involved.
Intellectual property
In today’s digital world, where many start-ups are launched in the technology space, protecting your intellectual property (IP) is crucial. IP includes:
- Trademarks
- Patents
- Design rights
- Copyright
Investors will want to see that you have protected any IP rights before committing any funds. However, IP is a minefield for those without prior knowledge because registration of a trademark, patent or design rights involves in-depth searches to ensure nothing similar exists. And these searches often must be done on an international level. Many entrepreneurs invest time and resources into securing patents, trademarks and/or design rights without fully understanding the risk involved.
If your business is formed on the basis of valuable, new technology, or you are committed to creating a strong brand to increase the scalability of the venture, investing in IP advice from the outset will greatly increase your chance of success and minimise the risk of costly infringement disputes.
All organisations must be compliant with the General Data Protection Regulations (GDPR). The best way to manage data protection is to implement clear policies and procedures from day one. For example, make sure that your organisation knows what personal data is collected (and why it is collected) as well as where it is held. This way, if a customer requests a copy of the data you hold on them (known as a Subject Access Request), you can comply with the request quickly and accurately. You must also check that your contracts with third parties engaged in processing personal data collected and retained by your organisation are compliant with GDPR.
You will also need to establish whether you require a Data Protection Officer (DPO). When it comes to requiring a DPO, it is not the size of the organisation which matters, but the scale and type of data processing your business engages in.
Final words
Choosing to start your own business after 50 provides scope for a new challenge and a chance to use everything you have learned in your career to date for your benefit. It also provides the ability to work flexibly and have complete control over your destiny. However, success in business requires careful planning, risk-management, clear agreements, and a thorough knowledge of compliance obligations. Investing in professional advice will save you time and money by not having to work things out for yourself. In addition, you can be confident that the actions you take are based on sound knowledge and expertise, allowing you to relax and focus on growing your venture.
To find out how we can help you with the legal aspects of starting your own business, please contact Jason Greenberg, a Partner in our Corporate & Commercial Team
