Protecting your business
Before registering your business and starting to trade, you must decide how to protect it. Quite how this is done will depend on the nature of your business and the related requirements. There are certain protection measures that all business will have (for example Articles of Association) whilst other measures (for example certain data protection policies) may only be relevant for businesses operating in certain industries.
Articles of Association
Articles of Association (“Articles”) contain the company’s constitution and set out the management and administrative structure. All companies have Articles and they act as a guidebook providing governance for all areas of company life. Legislation provides a standard set of Model Articles which are sometimes sufficient to cover what is needed. However, the Model Articles do not (for instance) include pre-emption rights on the transfer of shares. They can be adapted in part or replaced entirely by a set of bespoke Articles to provide for the requirements of your company.
The protection afforded by Articles is generally of an internal regulatory nature. They regulate internal affairs, in particular relating to shares and dividends, board and shareholder meetings (including voting), powers and duties of directors, borrowing powers, and return of capital on winding up of the company. They commonly set out the procedure in the event of one shareholder wishing to sell their shares, by ensuring that those shares are first offered for sale to the remaining shareholders, known as “Pre-emption Rights”. They can also force minority shareholders to follow the majority shareholders in the event of a company sale (“Drag along rights”) and allow minority shareholders to join majority shareholders again in the event of a company sale (“Tag along rights”).
Articles are public documents and therefore any potential investor can scrutinise them to ensure the appropriate internal measures are in place to protect their investments and allow them to participate in the company’s development.
Shareholders’ Agreements are not compulsory and generally provide more protection for the minority investor than for the founder. They normally include a lot of “reserved matters” which the board may not approve without the consent of certain minority shareholders or their representative director. They can also detail what is to happen if there is disagreement between the shareholders, providing steps for resolving deadlock. Unlike Articles, Shareholders’ Agreement are confidential documents and therefore are not available for public inspection.
Intellectual Property Rights
Intellectual property (“IP”) rights, which apply to all work created by your company, give your company certain controls over the use of protected work. These can be very valuable assets (and sometimes the only assets) of a company and it is therefore crucial that this area is properly considered to ensure that all IP rights are protected as far as possible, for example by patents, registered designs or trademarks. Copyright is not generally registerable.
Once your product has grown, you may wish to allow others to use your product, subject to strict controls protecting your company’s interests. For this, your company would require some form of agreement, such as a Licence Agreement, between the parties setting out the agreed terms, including their permitted use of the protected work and the usage fee payable to your company.
With the internet playing such a fundamental part in our everyday lives, it is almost certain that your business will have an online presence. There are a number of steps that can be taken to protect both your company and your customers, which can be vital to ensure not only the efficient running of your company, but also compliance with legislation.
You are likely to require a set of terms detailing how third parties may use your website. These terms would need to be tailored to your particular requirements, but generally speaking they would cover all internet-related concerns such as how your website may be used (accompanied by a separate Acceptable Use Policy), pricing policies, uploading and downloading content, and limiting your liability as far as possible. Essentially, all of these steps serve to protect you and your business.
When operating your website, you will invariably be collecting personal data belonging to third parties, meaning you will need to abide by strict data protection rules which protect those third parties and their personal data. Any breach of these rules can result in serious financial penalties. It is therefore crucial that all businesses have in place appropriate procedures and policies to ensure compliance. The content and extent of those procedures and policies will vary, but will most likely include Data Protection and Privacy Policies, together with Cookies Policies, all detailing how the personal data will be used and stored. Having such policies in place will not only act as an internal audit of your company’s procedures when dealing with such data but more crucially, it reassures third parties that their personal data is protected.
Of course, the rules relating to dealing with personal data also apply to data received outside of the digital realm, and we can provide further advice in this respect, if required.