As the country’s businesses across all sectors, big and small, meet for a variety of events this Scottish Business Week (18-22 October), one key area of focus will be on start-ups.
So as today’s entrepreneurs kickstart new businesses, what do they need to know? What are the pitfalls they need to look out for, how can they protect their ideas, and how should they go about finding the right investor for their business?
Julie Nixon, Senior Associate at Morton Fraser, shares her top ten tips.
1. A Non-disclosure Agreement (NDA)
Use an NDA while discussing a potential business relationship with another party or parties if you plan to disclose confidential information during the discussions. Trade secrets or ideas can only be protected by confidentiality.
2. Companies House Filings
As a director you have responsibility to prepare and deliver certain documents to Companies House. These include a confirmation statement, annual accounts and notification of any change to the company's Person with Significant Control details.
3. Trade mark
This can be your company name and/or name of the company's products and/or services (if the name qualifies for trade mark protection). A trade mark can be unregistered or registered. Care should be taken to ensure your trade mark does not infringe the trade mark rights of a third party. Just because you can register your company name at Companies House does not mean you have freedom to operate under that name (you may still be infringing a third party's intellectual property).
4. Privacy Notice
If you are a "controller" of personal data under the UK GDPR, then you must provide information to your customers as to how you process their personal data (such as collecting, using and sharing their personal data). This is usually in the form of a privacy notice.
5. Do I need to register my intellectual property rights?
If your intellectual property rights can be registered then this is worth considering. By creating a "monopoly" on the use of your intellectual property rights, they become more of an asset to your business. Intellectual property rights are not just patents, consider your trade marks and designs which can also be registered. You don't need to register copyright.
6. Contractors and intellectual property rights
If you engage contractors who are not employees, any intellectual property rights generated by a contractor providing services for you will reside with the contractor. You need to ensure that those intellectual property rights are either transferred or licensed to you or your company.
7. Do I need written terms and conditions?
It is advisable that any business relationship is governed by terms and conditions setting out the obligations and rights of each party. If you engage with consumers then consumer legislation needs to be considered as part of your contractual obligations.
8. Should I have an incorporated company?
There are many "types" of businesses, including sole traders, partnerships and companies. If you run your business through a limited company, it is the company that is liable for any breach of contract (not you personally, except in exceptional circumstances). A company limited by shares is usually the appropriate vehicle for receiving investment.
9. Talk to the right investors
It may seem obvious but do perform "due diligence" on any investor you consider approaching. Does that investor normally invest in your sector? Does that investor have a limit on the size of funds it normally invests? Does the investor expect an exit in a certain time frame? Each type of investment carries its own advantages and drawbacks, and you may want to consider if an investment for equity is right for your business plan.
10. How long does it take to raise investment?
As a general rule of thumb, it will always take longer to complete an investment than you expect. Not only do you have to find the right investors who are interested in your sector, but you have to go through meetings, due diligence and negotiations on investment terms. From the point of signing a term sheet, you should allow at least three months to complete the investment.