© Inge Hill, Start Up, Palgrave 2015

Legal Issues and Governance CHAPTER 8 Legal Issues and Governance © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Learning outcomes Explore legal fit as part of operational fit Discuss the six principles and practices and their application in selecting the most appropriate legal form Explore the need for licenses for trading legally and safely Differentiate the various forms of intellectual property rights Examine ways to divide shares in team start-ups © Inge Hill, Start Up, Palgrave 2015

The Business model cube™ © Inge Hill, Start Up, Palgrave 2015

Areas of fit PERSONAL FIT FINANCIAL FIT IDEA OR OPPORTUNITY? LEGAL AND OPERATIONAL FIT INDUSTRY AND MARKET FIT IDEA OR OPPORTUNITY? Figure 11.3 Start Up and 3.3 © Inge Hill, Start Up, Palgrave 2015

Legal fit has to be 90 % (part of operational fit) Essential questions to answer: Licenses you have to obtain and renew Need and/or cost for intellectual property Cost for company registration Ability to meet the requirements of the law, for example for the storage of alcohol and its sale, and regulations. Legal requirements for importing a product and meeting EU and UK product reliability and health and safety standards. Fit of legal form and funding interest © Inge Hill, Start Up, Palgrave 2015

Legal forms for for-profit start-ups (Table 6.1) Sole trader / proprietor Company limited by shares, private Company limited by shares, public Partnerships UK: limited partnerships UK: limited liability partnerships © Inge Hill, Start Up, Palgrave 2015

Legal forms for not-for-profit start-ups (Table 6.2) UK – Charity CIO – Charitable incorporated Organisation UK Company limited by guarantee UK: registered societies UK: community interest company CIC Company limited by shares Company limited by guarantee © Inge Hill, Start Up, Palgrave 2015

How to choose a legal form Differences between the legal forms lie in… Personal responsibility and liability of founder(s) and/or directors Tax liabilities to government Legitimacy as a company Access to funding for start-up and growth © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Questions to answer when choosing a legal form (principles of sustainability and alertness) What is the main purpose of the organization? Personal gain or social difference / mission Is trading a means to an end or the core purpose? Will you want investors that can make a profit? Select a for-profit legal form in most cases; CIC limited by shares allows for very limited profits for impact investors to take away. Do you want to raise donations / sponsorship? Go for a social enterprise / non-profit. © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Licenses for trading WHY? Trading safely and legally Permissions to trade – protecting the public Not selling alcohol to minors or vulnerable adults Protecting the environment Disposing of waste safely Storing dangerous substances safely such as motor oils WHERE? UK www.gov.uk/licence-finder US https://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/obtain-business-licenses- Sweden https://www.verksamt.se/en/web/international/alla-e-tjanster/find-permits © Inge Hill, Start Up, Palgrave 2015

Intellectual property rights Patent Trademark Design Design right Copyright © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Patents “A patent protects new inventions and covers how things work, what they do, how they do it, what they are made of and how they are made.” www.IPO.gov.uk Your invention must: be new have an inventive step that is not obvious to someone with knowledge and experience in the subject be capable of being made or used in some kind of industry Your innovation must not be a scientific or mathematical discovery, theory or method a literary, dramatic, musical or artistic work an animal or a plant variety, a method of medical treatment or diagnosis. EU level http://worldwide.espacenet.com/advancedSearch?locale=en_EP © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Using a patent How to legally use someone else's patent: through transferring ownership (assignment) and licensing agreements; get a license allowing you to manufacture, use, sell or import a patented product or process. © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Trademark ® = a sign which can distinguish your goods and services from those of your competitors that differentiates your goods or service as different from someone else's. It can be words, logos or a combination of both. It has to be distinctive for the goods and services provided. It has to be formally registered to be protected. © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Registered Design “A Registered Design is a legal right which protects the overall visual appearance of a product or a part of a product in the country or countries you register it. For the purposes of registration, a design is legally defined as being "the appearance of the whole or part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture or materials of the product or ornamentation." This means that protection is given to the way a product looks.” (www.gov.uk/register-a-design, accessed 5/10/15) © Inge Hill, Start Up, Palgrave 2015

Design – what is a product? A three-dimensional product such as an industrial or handicraft item (other than a computer program), or two-dimensional ornamentation alone, eg. a pattern intended for display upon a product, or a stylised logo. “Product" can refer to a variety of objects such as packaging, get-up, graphic symbols, typographic typefaces, and parts of products intended to be assembled into a more complex product. Protection may be granted to the overall presentation of those products which can consist of multiple components but which are sold as one single item, eg. a board game complete with playing pieces, or a product in its packaging. ' © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Design right Specific legal protection available to unregistered designs in the UK only. Design Right - automatic protection for the internal or external shape or configuration of an original design, i.e. its three-dimensional shape. Design Right allows you to stop anyone from copying the shape or configuration of the article, but does not give you protection for any of the 2-dimensional aspects Duration: Protection is limited to the United Kingdom (UK), It lasts either 10 years after the first marketing of articles that use the design, or 15 years after creation of the design - whichever is earlier. (see www.gov.uk/design-right, accessed 5/10/15) © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Copyright © Copyright can protect: literary works, for example novels, instruction manuals, song lyrics, and some types of database; dramatic works, including dance or mime; musical works; artistic works, including paintings, engravings, photographs, sculptures, collages, architecture, technical drawings, diagrams, maps and logos layouts or typographical arrangements used to publish a work, for a book for instance; recordings and broadcasts of a work, including sound and film. © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Copyright © Copyright applies to any medium: No copying of more than a chapter / book No publishing of photos on the internet or making sound recording of a book etc. Copyright does not protect ideas for a work. Only when the work itself is fixed, for example in writing, copyright automatically protects it (no application needed). Lots of exception for teaching and learning. © Inge Hill, Start Up, Palgrave 2015

International Protection UK The Intellectual Property Office http://www.ipo.gov.uk/types.htm EU http://oami.Europa.eu/ohimportal/en/ In each country of the EU you can apply for individual protection US www.stopfakes.gov/business-tools Worldwide WIPO www.wipo.int/portal/en/index.html © Inge Hill, Start Up, Palgrave 2015

Dividing shares in team start-ups One method example: (used by case study Richard Rodman) Pie Calculator, after Frank Demmler: How to calculate it: Identify important tasks and give each of them a weighting, all adding up to 100 % Allocate to each task the percentage each founder contributes Calculate shares through adding up percentages. © Inge Hill, Start Up, Palgrave 2015

Dividing shares – Demmler approach Example: Three founders – A, B, C Tasks: Business idea (10 %), Business plan writing (15 %), Subject expertise (20 %), commitment in terms of time and money and risk (25 %), Responsibilities in setting up and running the business (30 %) A – 0 for business idea, 10 % business plan writing, 20 % setting up business - 30 % of all shares B – 5 % business idea, 3 % business plan, 10 % subject expertise; 15 % commitment; 5 % setting up and running the business – 38 % of all shares C – 5 % business idea; 2 % business plan writing, 10 % subject expertise; commitment 10 % and 5 % setting it up and running it – 32 % of shares. © Inge Hill, Start Up, Palgrave 2015

Legal fit has to be 90 % or more (part of operational fit) Essential questions to answer: Licenses you have to obtain and renew Need and/or cost for intellectual property Cost for company registration Ability to meet the requirements of the law, for example for the storage of alcohol and its sale, and regulations. Legal requirements for importing a product and meeting EU and UK product reliability and health and safety standards. Fit of legal form and funding interest © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Summary The choice of legal form and financial model is essential and needs to be done early in the start-up exploration; it is part of the feasibility study. Protecting your ideas and innovations early on is an expression and application of sustainability and alertness. Finding ways to acknowledge the different contributions of founders to the business is an application of co-creation and sustainability. © Inge Hill, Start Up, Palgrave 2015

© Inge Hill, Start Up, Palgrave 2015 Questions? © Inge Hill, Start Up, Palgrave 2015