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The UK’s technology industry continues to attract entrepreneurs as it becomes increasingly innovative and profitable. However, amidst the excitement of bringing a new idea to this market, it is crucial to understand vital legal considerations. These include selecting the most suitable legal structure for the business, the implications of obtaining capital and the importance of seeking professional legal advice. This article will explain essential legal considerations for setting up a technology business.
1. Business Structure
With any new business, selecting a suitable legal structure is vital. There are different legal implications associated with each structure, including liability and tax obligations.
The following table outlines the most common types of business structures in the UK.
| Business Structure | Explanation |
| Sole trader | Sole tradership means an individual owns and operates the entire business. They have complete control over all aspects of the business. But, they are also personally liable for all the business’s debts and obligations.Regarding tax obligations, sole traders report the business’s income and expenses in their self-assessment tax return, paying income tax based on the business’s profits. |
| Partnership | A partnership is similar to a sole tradership but involves two or more people owning the business. The partners share in the business’s profits and losses according to the terms of their partnership agreement. Partners will be personally liable for the business’s debts and will pay income tax based on the business’s profits through self-assessment. |
| Limited company | You must register the business with Companies House to set up a limited company. This structure separates your personal assets from the company’s assets, unlike unincorporated structures (sole traders and partnerships).Limited companies pay corporation tax, and you must also pay tax on your taxable income separately. |
| Limited liability partnership (LLP) | In an LLP, there are two or more partners. They limit their liability to their share in the business as per their LLP agreement. |
Additional types of tax may apply depending on your business’s profits, operations and structure, including VAT and national insurance contributions. You can seek professional advice if you are unclear about the legal or financial implications of different business structures.
2. Financing
Generating capital is an essential part of any founder’s journey. Capital generation brings several legal implications, including the following:
- contractual implications;
- liability;
- tax obligations; and
- ownership and business structure considerations if you exchange equity for investment.
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3. Intellectual Property Protection
Safeguarding your unique ideas and inventions involves protecting your intellectual property. Intellectual property holds critical importance in the technology industry. You can protect your business’s innovations, such as unique software and hardware, from competitors by securing patents, trade marks and copyrights.
4. Contracts
Well-drafted contracts are crucial for a technology company’s operations and growth. They define business relationships, set expectations and mitigate risk.
Such contracts can include:
- employment contracts;
- partnership agreements;
- supplier contracts;
- licensing agreements; and
- non-disclosure agreements (NDAs).
5. Data Protection Obligations
How your company will uphold data protection and comply with privacy regulations are crucial legal considerations for technology founders. You must understand how the General Data Protection Regulation (GDPR) applies to your business’s operations and adhere to relevant data protection obligations.
6. Insurance
The kinds of insurance you and your company need depend on how it operates. Relevant insurance could include:
- public liability insurance; and
- commercial property insurance.
If you have employees, you will also need employee liability insurance.
7. Licencing Agreements
You should have a well-drafted software agreement in place if your company will supply software. Such agreements define how users can use and access the software and can also help protect your company’s intellectual property rights.
8. Legal Advice
Startup lawyers can help aspiring founders with each area this article has discussed. The legal landscape of any industry can be complex. This is especially true of the technology industry, where intellectual property, data protection and regulatory compliance are paramount. Legal advice can help founders understand the legal implications associated with their business activities.
LegalVision’s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup.
Key Takeaways
This article has explained several relevant legal considerations for aspiring technology company founders. These include the following:
- selecting the most appropriate legal structure for the business;
- generating capital with an understanding of the implications of contracts, liability, equity and tax obligations;
- protecting the company’s intellectual property;
- having well-drafted agreements in place;
- awareness of data protection regulations and ensuring compliant operations;
- checking which types of insurance you will need and purchasing relevant policies;
- drafting robust software licensing agreements; and
- seeking legal advice from the beginning of your journey.
If you need advice on the legal implications of setting up a business in the technology industry, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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