1. © Inge Hill, Start Up, Palgrave 2015

2. Legal Issues and Governance
CHAPTER 8
Legal Issues and Governance
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3. © 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
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4. The Business model cube™
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5. 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
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6. 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
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7. 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
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8. 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
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9. 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
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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.
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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 US
Sweden
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12. Intellectual property rights
Patent
Trademark
Design
Design right
Copyright
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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.”
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
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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.
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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.
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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.”
( accessed 5/10/15)
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17. 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. '
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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 accessed 5/10/15)
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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.
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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.
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21. International ProtectionUK
The Intellectual Property Office EU
In each country of the EU you can apply for individual protection US
Worldwide WIPO
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22. 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.
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23. 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.
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24. 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
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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.
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Questions?
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