In recent years, Brighton has become known as the UK’s most entrepreneurial city and most suited to start a business. Brighton has developed into a successful digital technology hub too, with its tech economy valued at more than £1 billion per annum. In the last five years the ICT and digital sector has grown by over 40%, and Brighton’s share of immersive technology companies is four times greater than the national average, according to an Immerse UK report.
Tech companies are often set up by groups of individuals who come together with a shared idea for a new business. Many comprise enthusiastic and creative individuals who apply innovation and democratic principles in their approach to running a modern business (hence their success rate). However over time individuals can develop a divergence of priorities and views and ultimately may wish to move on. If you haven’t considered how you would manage this, you could damage your business.
Corporate Partner at Healys LLP, Karen Lord, highlights three key ways in which business owners can protect themselves and a successful business.
1 Ownership Rights
Tech companies often develop new technologies which give them a competitive edge and which are a core asset of the business. It’s important to check whether you have properly secured the ownership rights in these technologies – failure to do this could result in disputes and in the worst case could mean that the business is no longer able to use or benefit from the technology.
2 Restrictive Covenants
Businesses also need to think about protection against the actions of shareholders and staff who leave. Restrictive covenants should be in place to stop individuals from taking assets from the business, such as clients, staff, confidential information and products etc. If there are no signed restrictions in place, this can leave the business vulnerable.
3 Shareholder Arrangements
When you are starting out it’s difficult to imagine that life as a co-owner will not always be rosy. But the reality is that people change: whether it’s a change of priorities or simply that one-time friends no longer get on, businesses and shareholders always suffer where co-owners are no longer able to work in harmony. The company’s constitution (Articles of Association) and a shareholder’s agreement should provide a roadmap of how to deal with this situation, protecting the business and its owners and providing a fair outcome to all involved. Putting these documents in place at the start of your journey has the added advantage of making you have a sensible discussion about these types of issues when emotions are not running high.
It’s essential for tech companies, especially those with multiple owners, to have these key risks covered to minimise the impact on the business and on the owners of future disputes with regard to the ownership, rights, and finances of the business. Some of the largest tech companies in the world have fallen victim to such risks. In recent years, Microsoft co-founder, Paul Allan, accused Bill Gates of being a bully who tried to force him out of the firm and cut his share in the business as he was recovering from cancer. Allan held onto his billion dollar share, however many lose out in these situations.
If you require corporate legal advice for your business, please contact Corporate Partner Karen Lord on 01273 669124 or email her at: Karen.firstname.lastname@example.org