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Key legal pitfalls of starting up

27 November 2017. Published by Charles Buckworth, Senior Associate

Starting any business can be daunting, especially in a sector as heavily regulated as the insurance sector.

In this series of blogs we set out some of the key legal areas for Insurtech start-ups to consider as they start to construct and implement their business ideas.  These are areas which, as we have seen from experience, often get pushed down the list of priorities for cost and timing reasons or for consideration "another day".   Often that "other day" isn't until a due diligence process (for example, for further investment or an exit for founders) or until a dispute occurs.  It is at this stage that founders come to realise that they do not own key intellectual property, that they have given away key rights to co-founders or investors or, that their ownership of the business is not documented as anticipated. 

As a result, founders can be stuck in costly and protracted litigation or find that the business in which they invested time, money and other assets, yields substantially less value to them than expected.  

A start-up is an investment in time and resources.  As that old parable goes, build your house on rock and not on sand: always seek legal advice to try to ensure that your start-up has stable foundations to prosper and grow.   While it is tempting to put legal issues aside until the business is "more developed", to save time and costs in the early stages, this can prove to be a false economy.  What could cost a few thousand pounds at the start-up stage to get right, could end up costing you literally millions further down the road. 

That said, as many people in the start-up sector will tell you, there is a balance.  For example, while it is important to get the basics right, we understand that many start-ups may not be seeking strict "legal compliance".  Indeed, in our experience, in many instances start-ups in this sector are moving far faster than regulation and so testing the boundaries of regulation (in an informed manner) can be essential to a start-up's success.  In addition, start-ups need to be nimble, reactive and need to "road test" their ideas to see if they work in practice before spending large sums on legal fees and "legal compliance".  It can be a difficult balance to strike which is why it is important to get legal advice from advisors who understand the importance of the necessity for a different approach between established businesses and the start-up world.  Only this way can you access legal advice which is proportionate and relevant to your needs.

This series of blogs will look at some key legal issues including the following:

  1. Agreeing the deal with your co-founders; 
  2. Protecting your confidential information;
  3. What legal structure should the business take?  
  4. Ownership and Protection of Intellectual Property Rights;
  5. Your terms of business;
  6. Tax issues;
  7. Compliance with laws: securities laws;
  8. Compliance with laws: insurance regulatory issues;
  9. Compliance with laws: consumer protection issues;
  10. Compliance with laws: data protection issues;
  11. Employees; and
Having the right legal counsel.