Category: Insights

Why Every Start-Up Needs a Board of Directors

Posted on by Jay

Most people would associate a board of directors with bigger companies where the influence and guidance of an independent board is crucial to good corporate governance and the success of the business. However, although a start-up or small business can also reap substantial benefits from them, many owner/founders still question why they need (and shy away from) accessing the advice and guidance an in-person board can give. Instead, they turn to sometimes dubious online accelerator programs.

Take Your Foot Off the Accelerator

Ask a start-up founder what they look for in an accelerator program and many will say they want:

Advice from entrepreneurs who’ve “been there and done that”; or
introductions to potential investors including prominent venture capitalists.

Both of the above are something you can also get from a carefully selected board of directors.

Those who signed up with Texas-based Newchip, a virtual accelerator provider, didn’t get what they bargained for when it entered into Chapter 7 bankruptcy in May 2023 leaving creditors owed $4.8 million. Ironically, Newchip was itself something that may have benefited from a strong and independent board. Newchip’s founder, Andrew Ryan, admitted it grew much too fast and that he’d never been a CEO of a company that big.

A Board Adds Value

Part of the appeal of running your own company is independence, the freedom from process, and the ability to pursue your own unique vision. That said, there is no doubt that start-ups with professional boards tend to be more resilient, as well as more attractive to investors and talent. Diverse and independent board members can add value to a start-up company by bringing skills and experience that the founder may lack as well as giving access to business contacts and networking opportunities which are so crucial for an early-stage business.

Nor is there any need for the founder to relinquish control of their company. For many entrepreneurs and smaller businesses, an advisory board might be better than a fully mandated board. An advisory board does not have any legal responsibility but is solely there to advise and give feedback. Fully mandated board members also steer and guide strategy, enabling you to do the best job you can, not act as your ‘boss’.

In particular, the role of non-executive directors (who have the same legal responsibilities as executive directors) is to ensure good corporate governance, provide oversight, expertise, knowledge, and if needs be, constructively challenge management. They are not involved in the day-to-day running of the business and are not employees of the company but can still give clarity around strategy and help to differentiate between long-term and short-term goals.

Attracting Investment

The independent advice of a board can also be important in attracting investment by giving investors greater confidence that important decisions are being made solely in the interests of the company, free from any conflicting interests. If that investment in your firm is from venture capitalists (VCs) it’s probably even more important to have a board that provides strong oversight. After supplying capital, instead of monitoring their portfolio of start-ups to reduce hazards, some VCs are unfortunately using their role in corporate governance to persuade founders to pursue high-risk, rapid growth strategies to maximize returns, with all the dangers that poses to young firms. An independent board can balance the need for ongoing innovation with sustainable, accelerated growth.

Attracting and Retaining Talent

Having a board can also help when it comes to attracting and retaining talent. Getting independent board members to interview candidates not only takes the load off the owner/founder but is also very appealing for potential recruits as it can give them a wider picture of the company vision. Post-recruitment a board can also provide the oversight to ensure that you have the right HR systems and policies in place, helping to retain that talent by looking at remuneration and incentive structures as well as training.

Pick the Right Board for You

As a start-up, you should look to recruit board members with different professional experience and a range of perspectives to embed diversity of thinking which increases creativity and innovation. Many larger companies have entrenched cultures which do not harness diversity. In 2021, a report (The Hidden Truth: Diversity & Inclusion in the FTSE All-Share) revealed that less than half of companies met the target for 33% women on boards and only 3% of board members in the FTSE All-Share ex350 were ‘directors of colour’ (male or female). Start-ups can take advantage of recruiting board members with a range of perspectives to embed diversity of thinking from the outset and gain a competitive advantage.

The team of start-up lawyers at Motion Paradox can give you legal advice and guidance in corporate governance, as well as assistance in structuring a board that suits your needs to ensure your firm is more resilient, scalable, and profitable.

AI and Intellectual Property

Posted on by Jay

Do You Really Own Your App?

Depending on who you listen to, Artificial Intelligence (AI) is either a boon for mankind or, according to Elon Musk, the greatest existential threat we face as a species. It’s the “dangers” of AI that have fulled most regulation currently being discussed, with news reports focusing mainly on the perceived risks for citizens’ fundamental rights and freedoms. However, there are also legal liability concerns for both developers and users of AI inspired applications and tools.

AI and Intellectual Property Issues

In particular, the development and increasing use of generative AI systems – the technology that enables the creation of content on demand – does have significant potential, but also raises significant legal issues. Upcoming regulation has relatively little to say so far about the complex – but highly commercially relevant for many tech start-ups – intellectual property (IP) implications of AI systems. A situation made even more complex by the cross-jurisdictional nature of online data scraping and use, and territorially different intellectual property laws.

AI Ownership and Copyright Issues

A start-up tech firm or an individual who has developed an app using AI may choose to monetise it by placing it on a major player’s platform and it’s important that the developer can say they own the IP in the app. Establishing this if AI has been involved in the development is not as clear cut as you may imagine.

The UK’s position on copyright ownership for AI generated works remains ambiguous, while other jurisdictions such as the USA, Spain, and Germany have clarified theirs, stating that copyright can only exist and be owned by a human being.

Is Your AI System Protected?

Some aspects of Al systems can be protected by patents and copyright, but machine learning systems don’t fit neatly into conventional IP categories. This is in part due to the fact that the real investment and value in developing a generative Al solution goes into the training process, which makes the system inherently much more valuable. However, generative AI relies on the input of large amounts of training data, which may or may not be subject to IP restrictions. Photos and text underlying some of the popular generative AI applications are likely to be copyright protected, but whether the training set as a whole is protected varies depending on the jurisdiction (the European Union for example has a specific database protection right).

Will The Output Infringe Copyright?

The output of a generative AI system will inevitably contain traces of the training input, and these can sometimes be readily identifiable. For example, visual media giant Getty Images filed a case earlier this year in the High Court of Justice in London against Stability AI, alleging that the company copied 12 million images to train its AI model without permission or compensation.

Stability AI and another AI art start-up – Midjourney are also being sued in the US by artists Sarah Andersen, Kelly McKernan, and Karla Ortiz who claim that these organisations infringed their rights by training their AI tools on images scraped from the web without the consent of the original artists.

In the US, “fair use” can be a defence against claims of copyright infringement. The digitisation of copyrighted books for an online library project has been interpreted as “fair use” by US courts but it is not yet clear whether this exception will apply in the context of AI. Most European copyright laws do not recognise “fair use”, so it’s more difficult to justify the use of a third party’s copyrighted works in the input or output of an AI system. If third-party copyright is infringed, it’s the user and the AI developer who would be liable.

Avoiding Costly litigation

To avoid the possibility of costly and potentially business-breaking legal problems, AI developers should ensure they comply with the law when acquiring training data. This could be done through licensing agreements or by sharing revenue generated by the AI tool with the individuals who own the IP of that training data.

Equally, customers of AI tools and apps are increasingly likely to ask providers and developers whether their models were trained with any copyright protected content. To avoid risk to themselves, they will shun generative AI tools that cannot confirm training data was properly licensed from content creators or subject to open-source licenses with which the AI company complied.

Our team of start-up lawyers at Motion Paradox can give AI developers and corporate users of this emerging technology guidance in navigating a largely unregulated landscape. We can ensure your business is protected from legal issues that may damage your company.

How Hiring a Start-up Lawyer in London Can Help Build a Solid Foundation for Your New Business

Posted on by Jay

A start-up lawyer can provide legal assistance and guidance that can help build a solid foundation for your new company and help avoid problems that can arise.

Starting a new business can be an exciting and rewarding journey, but it can also be quite challenging. Many entrepreneurs who start a new business overlook the importance of hiring a start-up lawyer, often due to the perceived expense of so doing. Some start-up owners will explore ways to reduce cost by attempting to create their own contracts using templates available online.  The following are just a few ways that a start-up lawyer in London can help your new company succeed and grow.

Avoid Do-It-Yourself Contracts

Creating your own contract using online or off-the shelf formats may at first seem to be cost-effective but is fraught with risks. Online templates are often overly broad or vague and using these DIY contracts may leave out key provisions, that protect your interests. The DIY contract could prove to be unenforceable while the inclusion or exclusion of terms commonly found in boilerplate templates could unintentionally create potentially damaging legal obligations or liabilities. The limited savings of a DIY contract are quickly outweighed by the time and money you would have to spend if any of these risks become a reality for your fledgling business.

Companies require bespoke contracts and services put in place in order to avoid risk and scale properly. A start-up lawyer can help you draft, revise, and review legally watertight contracts and agreements, to help ensure that your interests are protected. This can include shareholder agreements, employment contracts, vendor agreements and sales contracts.

A Start-up Lawyer Can Help Protect Your Intellectual Property

One of the key areas where a start-up lawyer can provide valuable assistance is in protecting your intellectual property. When starting a new business, it is critical to ensure that your intellectual property is protected. Whether in the form of patents, trademarks or copyrights, a lawyer can help protect your intellectual property and prevent infringement.

Help Your Start-up Comply with Regulations

Building a start-up company also means complying with a wide range of regulations. Navigating all of the regulatory requirements can be quite complex, especially in the technology sector. Advice is helpful to understand the regulations and ensure that you are in compliance. This can help prevent legal issues down the line, such as potential lawsuits, fines, and penalties.

Start-up Lawyers can Provide Solutions to Business Disputes

Unfortunately, disputes among start-up business partners or with other entities can arise. When these disputes occur, it is important to resolve them quickly to ensure that they do not derail the progress of your business. A start-up lawyer can provide valuable assistance in helping to resolve these disputes in a timely and effective manner, while also protecting your interests.

Due Diligence

At some point you may want to raise capital for your start-up. Any potential investor will have many questions about your business prior to investing. A start-up business attorney can help you prepare the requisite corroborating documentation to support each of your responses. Through the due diligence process, they can thoroughly review your company records, identify gaps, and help you understand which warranties and representations can be made, with a view to being transparent without jeopardising the transaction.

Offer General Business Guidance

Finally, a start-up lawyer can offer general business guidance. This can include advice on choosing the right business structure to support on fundraising and investments, and a wide range of other business-related matters in-between. Hiring a start-up lawyer can help you navigate the complex world of business, ensuring that you make informed decisions from the outset that benefit your start-up in the long-term.

The team of London start-up lawyers at Motion Paradox can help build a solid foundation for your new company. We provide all of the above services and more, helping to ensure that your business is protected from legal issues that can arise and also has the solid foundation needed for sustained growth. If you are starting a new business, consider hiring the legal experts at Motion Paradox to help ensure that your business is set up for success from the very start.

Doing Business in the USA

Posted on by Jay

In a previous Insights article we examined the issues faced by American companies wishing to set up business in the United Kingdom. The practicalities of doing that are complicated for US firms, and equally UK companies looking to expand into the USA face a similarly complex (but ultimately potentially very rewarding) journey.

Establishing a US Entity

Establishing a US entity is probably the most essential step for any UK company wishing to do business in the USA. That’s certainly the case if you are thinking of hiring USA-based employees, especially if you are also considering offering them equity incentives. If you intend to operate in a space where US product liability, patent infringement, or other litigation claims are frequent, having that US entity makes it more difficult for claimants to access the UK parent company’s deeper pockets.

Some heavily-regulated US industries may require certain types of operation to be run through a US entity and although it’s not a legal imperative, many US companies simply prefer to transact with other US companies. American Venture Capital investors generally require a UK company to establish a US parent company before investing (the so-called “Delaware Flip”). Whether your UK company should “flip” into a US parent company to access US VC investment is a question that requires careful consideration of the commercial, legal, and tax implications.

Establishing an American Bank Account

Establishing an American corporate bank account through a US entity is the next most important step because it’s far more efficient than trying to run things through a UK entity. However, it’s here that the complexities of doing business the United States have been highlighted by the recent turmoil and instability in the American banking sector. Before becoming the second-largest bank to fail in US history, Silicon Valley Bank (SVB) had been the go-to lender for high-tech start-ups.

SVB also spent close to a million dollars lobbying for the deregulatory policies in President Trump’s Economic Growth, Regulatory Relief, and Consumer Protection Act 2018, that undermined the Dodd-Frank Act which had curbed the extremely risky financial industry activities that led to the financial crisis of 2007–2008. This dilution of regulatory strength ultimately created the conditions for SVB’s downfall.

SVB’s management also appear to have neglected the basics of actual banking – the bank had no chief risk officer for most of last year – and the bank’s investment strategy wasn’t well-considered. Like many smaller, regional banks in the USA, the majority of SVB’s deposits were not insured by the Federal Deposit Insurance Corporation (FDIC). This is equally true of some larger US banks, but they can withstand fearful market jitters much better than the regional operations. There are a number of proposals for banking reform being discussed in Congress, including Senator Elizabeth Warren’s legislation to repeal Trump-era financial deregulation completely. Which, if any, will ultimately prevail remains to be seen.

The Importance of Due Diligence

Although the FDIC eventually guaranteed all SVB (and other troubled banks Signature and Silvergate) deposits, whether insured or not, that wasn’t a foregone conclusion. There was no legal obligation on the FDIC to do so and it cannot be assumed that such an intervention would be repeated if a bank failure happened again. This is vital for UK companies entering the US market to bear in mind. The importance of performing rigorous due diligence before selecting a US bank (not simply rushing to choose whichever institution will give you an account the fastest) is now even greater than ever.

Everything Takes Longer Than You Think

It should be clear in light of this turmoil that expansion into America requires careful planning, forethought, and execution of corporate compliance. However, UK firms should be under no illusion about how speedy this process will be. It generally takes much longer than most assume to form a subsidiary and get a federal Employer Identification Number (EIN) before finally opening a US bank account, which is required for payroll services and registering for employer and tax identification numbers in individual states where the company wants to operate.

Getting a federal Employer Identification Number from the US Internal Revenue Service (IRS) is a lengthy and very bureaucratic process, especially at present when such applications are subject to severe delay.

Equally, if your company isn’t willing to entrust a senior executive who is a US citizen to be legally responsible for the company in the US, it is much easier and faster if your designated UK executive obtains an Individual Taxpayer Identification Number (ITIN) prior to applying for an EIN number. Obtaining the ITIN alone can take up to 16 weeks.

Navigating the US marketplace requires patience but also demands experienced and knowledgeable guidance from a trusted partner like Motion Paradox, familiar with the legal and business environment on both sides of the Atlantic because that’s exactly where we ourselves operate.

Equality, Discrimination, and Your Liability

Posted on by Jay

Recent press reports suggest that a potential legal battle between the Scottish and UK Parliament is looming because the UK government is blocking a piece of devolved legislation aimed at making it easier for transgender people to change their legally recognised sex. The reason given for this move by Westminster is that the proposed change in Scottish law could impact on equality laws that apply across Great Britain as set out in the Equality Act 2010.

The Equality Act

The Equality Act came into force in October 2010. Some believe it could be the basis for triggering a constitutional crisis, but in any event it’s worth remembering it continues to have significant implications for all employers. The Equality Act covers almost every aspect of employing someone, either directly as an employee or as a sub-contractor.

Disabled Workers and Reasonable Adjustments

Under the Equality Act, employers have a responsibility to make sure that disabled people can access jobs and services as easily as non-disabled people. The duty extends to making “reasonable adjustments”. Defining exactly what is “reasonable” may sound pretty vague, but in terms of the Equality Act a “reasonable adjustment” is a change deliberately designed to remove or reduce any barriers that a disabled individual, or indeed any job applicant, may be faced with in applying for or performing a job.

These barriers can include:

  • a physical feature of the workplace (including the layout of the premises, the lack of a lift or toilets with wheelchair access);
  • the need for extra equipment or support e.g. for a blind person; and
  • other working arrangements, such as the hours an employee is required to work, the duties they are required to undertake, and the targets they are asked to meet.

The onus is on you, the employer, to show that any adjustments made are reasonable. Clearly a small business may not be able to afford the same level of adjustments as a large company, so the law does not require you to make adjustments that are unreasonable. For example, there may be cases where the cost of any such adjustment disproportionately outweighs the likely benefit, or where it may cause significant disruption to your business. In these circumstances, you should still try to find other ways to remove any disadvantage a disabled worker or applicant might suffer, because the consequences of failure to make those reasonable adjustments can be severe.

Failure to Make Reasonable Adjustments

A failure to make reasonable adjustments for a worker or applicant with a disability will constitute discrimination under the Equality Act. In most cases, an informal complaint or a formal grievance about the employer may be the outcome. However, in some cases, you could find yourself and your business facing a claim for unlawful discrimination before an Employment Tribunal.

Where the Tribunal makes a finding of a failure to make reasonable adjustments, the employer can be liable for an unlimited sum in damages – there is no cap. It is important therefore that you put in place appropriate measures to ensure any disadvantage suffered by a disabled worker or applicant is alleviated. Failure to do so could potentially have very costly consequences. However, it is not just disabled individuals who could make a claim for discrimination (in recruitment or employment) through the Employment Tribunal.

Discrimination and Protected Characteristics

The Equality Act 2010 protects individuals from discrimination by a variety of organisations. These include transport services, schools, and colleges and healthcare providers, as well as employers. The Act sets out nine “protected characteristics”, which are age, disability, gender reassignment, marriage or civil partnership (in employment only), pregnancy and maternity, race, religion or belief, sex and sexual orientation.

Under the Equality Act, discrimination involving one or more of these characteristics, in any context, is unlawful. Employers must therefore pay particular attention to recruitment policies, the content of job advertisements, and workplace practices.

Vicarious Liability

The Equality Act 2010 also has the effect of widening the definition of “employment” for the purposes of discrimination claims. Through the legal principle known as vicarious liability, the employer can be liable for the legal wrongs committed by an employee in the course of their employment even where the employer themselves has done nothing wrong.

In other words, you as the employer may be liable for an action that contravenes the 2010 Act taken not only by your employees, but also by your authorised agents or sub-contractors, whether you knew about those discriminatory actions or not. Vicarious liability applies not just to full time employees but also where there is temporary employment, provided the employer has some control over how the “employee” carries out the work or where they are integrated into the business. The employer can also be vicariously liable for the actions of temporary workers supplied by an employment or recruitment agency.

Defence Against Vicarious Liability

You may have a defence against vicarious liability under the Equality Act 2010. For example, if you can show that you took all reasonable (that word again!) steps to prevent the employee from doing the alleged act of discrimination. The bar is set extremely high for this defence so you will need to speak to an expert.

Talk to the experts here at Motion Paradox about protecting yourself and your business from Equality Act claims. We can give you advice about developing, implementing, and monitoring policies and practices that will ensure your business is inclusive and insulated from potential harm.

Recruitment and Retention Strategies for SMEs

Posted on by Jay

How do you best recruit and then retain valuable employees? That is a vital question for all businesses as well as the private and public sector. One of the common themes of the current wave of strikes in the UK is not just rates of pay, but the impact on employees of inadequate recruitment, poor morale, burnout stress, and low retention of staff.

It seems obvious that rates of pay will do a lot to attract new candidates, especially given the pressures we all face in terms of higher energy bills and double-digit inflation, but while firms certainly must be competitive in terms of remuneration, the importance of associated benefits packages is also vital. Recent workforce surveys seem to suggest that important though salary levels are, cash isn’t the be all and end all for many good candidates. The cost-of-living crisis notwithstanding, remote working during the pandemic seems to have changed how people view compensation. Successful talent acquisition and retention now depends on several factors.

Businesses will need a more tailored, holistic, recruitment approach with consideration given to hiring for attitude as much as aptitude. Each team member’s growth, learning and development is an individual journey and one path may not fit all. Companies would be well served to fully understand the skills they need, listen to candidates, use technology when it helps, and nurture the good people they already have.  All this will make businesses attractive to the potential employees needed by the business for it to grow and develop.

Building Your Employer Brand

Branding is not just for your customer base but is also the way existing and prospective employees perceive you as an employer. Building your employer brand is crucial in telling prospective candidates what you have to offer them. Start thinking about what makes you different as an employer. What employee benefits do you offer? Do you host social events for employees? Do you offer career development opportunities and training? It is these kinds of things that attract candidates to your organisation, so make sure you mention them in job adverts. If you have a careers page on your website add a section on what it’s like to work with the firm, using quotes from existing staff or even a short video. Showcase your staff and culture on social media.

Reviewing the Recruitment Process

Even if you have an established employer brand, how does an SME decide between building their own internal recruitment department or using an external agency? There are pros and cons to each approach, but which route you choose depends upon which works best for your particular circumstances.

Managing Recruitment Internally

Managing recruitment and selection within your company does mean you have quality control over all the processes with a focus on your company, all of the time. After all, you will know your company better than any external party ever can. But unless you do the job yourself, establishing an internal team will cost money. If your processes are inefficient you may end up spending a lot of time – which costs even more money – but these costs can often be lower compared to agency fees. In addition, there will be no ongoing fees based on a percentage of salary.

An in-house team will also have full candidate access so you will see every candidate who applies, reducing the possibility of good candidates being dismissed too soon in the process. In-house recruiters are also employees, so they will understand the culture of your company, meaning they are more likely to hire individuals who will be a good fit with the existing team. They will have nothing to gain (financially or otherwise) by proposing specific candidates and are likelier to hire the best person for the job on merit.

Agency Recruitment

Agency recruiters are specialists whose expertise is greatly increased when you use an agency familiar with your industry or sector. Agencies come in many shapes and sizes, with a recent rise in new hybrid players offering ‘fixed fee recruitment’, ‘online recruitment’, and ‘outsourced recruitment’ options. Most will work for a set fee-per-hire, or for a retainer fee agreed at the start. Agencies can find you someone very quickly, so if the recruitment need is urgent, they can often get a suitable candidate from their existing network of contacts.

Agencies are usually better equipped to fill niche roles. Part of the agency process is to screen or ‘qualify’ potential candidates, which is very time consuming. This saves you time and effort, meaning you can focus on the ‘day job’ without the extra commitment of having to run a recruitment campaign.

The recruitment agency will of course be highly motivated to fill your role because success for them means financial gain, but this doesn’t necessarily guarantee a quality placement.

One of the most important lessons however is that all contracts are negotiable. Do not feel that you must agree to an agency’s Ts & Cs. Their Ts & Cs tend to be extremely one sided (benefitting them), but Motion Paradox’s lawyers have a great deal of experience of renegotiating contracts, including with employment agencies. Feel free to contact us to see how we can help you.

Automated systems can also reduce the cost and time constraints of traditional recruitment, but there are risks in hiring ‘straight off the web page’ without an in-person interview.

Look at Skill Sets Instead of Job Titles

Whatever approach to recruitment is adopted, good advice is to hire the best talent you can, even if that does not necessarily fit a specific positional need. Recruiters describe a candidate with precisely the right range of qualifications that perfectly fits a job as a ‘purple squirrel’ (i.e. not that easy to find!). Over-specification of the requirements for your ‘perfect candidate’ can also be limiting and damaging. Excellent candidates may not be an exact fit, but are likely to be flexible, self-motivated, and determined. They will have an aptitude and desire to learn new things and are likely to be real team players. Assessing all these attributes is much easier face-to-face, which is time consuming, but looking a candidate in the eye is still the best way to assess how good a fit they will be. Thought will also have to be given to onboarding processes which make sure new hires are embedded effectively, so they can become productive more quickly.

Retaining Good Employees

Once you have found your ideal employee, how do you make them want to stick around? Obviously, for employees to make a long-term commitment to your firm, the employer will need to give them good reasons above and beyond simple remuneration. Showing your employees trust by giving them responsibilities that allow them to grow and gain new skills will help. Hiring from within wherever possible and giving generous promotions at appropriate times also builds morale and commitment.

Linking part of the wage to company performance through profit share or similar mechanisms will align your people’s interests with the company’s goals and provide an incentive to stay with the firm as it grows. Making the fixed cost of payroll inherently more variable also means you can make your company more resilient and agile. Any rewards you give your employees should speak to their emotional or domestic needs and should go beyond monetary compensation. Be generous with time off, because while you have every right to demand commitment and high-quality work, it is unreasonable to expect that continual level of performance 100 percent of the time.

The Exit Interview

If, despite all these steps, your staff retention rate is low and turnover high you can learn a lot from conducting thorough exit interviews. What attracted the employee to your organisation, and why are they leaving? Sometimes owner/founders of SMEs or managers don’t always see the workplace dynamics, especially if they’re in meetings or unavailable a lot of the time. Exit interviews can give an insight into the working culture and whether there is anything you can do to improve it. The exit interview will also give valuable information about external factors that may be pushing employees out the door, such as competitors offering better pay or better compensation overall. Perhaps not what you’d want to hear, but constructive criticism is one way to learn, grow, and retain staff.

Talk to the experts here at Motion Paradox about recruitment and retention. We’ve been where you are. We can give you advice based on our own experience of precisely the same issues you now face!

The Impact of Brexit on SMEs Becomes Clearer

Posted on by Jay

Even with factors such as the pandemic lockdowns, the September “mini-budget” and the measures announced in the Autumn Statement on 17 November, the impact of Brexit, especially on SMEs, is becoming clearer.

Most recently, Michael Saunders, an external member of the Bank of England’s Monetary Policy Committee, who left that position this month, felt free to comment on Bloomberg TV:

“The UK economy as a whole has been permanently damaged by Brexit”.

Former UK government Environment Secretary, George Eustice, now a back bench MP, similarly felt free to suggest that the much-vaunted Australia trade deal is not actually a very good one for the UK, increasing UK GDP by a mere 0.02% annually, and even then, only after 15 years.

The Big Brexit (a report published in June 2022 jointly by The Resolution Foundation and the London School of Economics) gave an ongoing assessment of the impact of the UK’s Trade and Cooperation Agreement (TCA) with the European Union (EU) and what the lasting impact of Brexit is likely to be.

The report suggests that Brexit has not had the expected effect of diminishing exports to the EU, but instead has more broadly reduced the openness and competitiveness of Britain’s economy – a decline not explained by changes in the pattern of global trade or the pandemic. The report cites a fall of eight percentage points in UK trade openness (total trade as a share of GDP) and also notes that the UK lost market share across three of its largest non-EU goods import markets in 2021: namely the US, Canada and Japan.

The authors of the report suggest that, while the overall structure of the economy will not change, some sectors will suffer – one of the worst hit being the manufacture of electrical equipment, which is particularly reliant on cross-border supply chains. They conclude that, while many believed the impact of Brexit would be a “one-off shock”, the reality is that, even without the current dire condition of an economy facing a lengthy recession, the fallout from the decision to leave the EU will be gradual and pervasive, affecting Britain’s competitiveness and productivity for at least the coming decade.

Immediate Brexit Challenges for SMEs

Some larger businesses are able to claim financial support when it comes to exporting from the UK. UK Export Finance, the UK government’s export credit agency, is currently lending its highest amount of credit in 30 years.

The government set up an SME fund offering various grants, however, applications for this scheme ended on 12 July 2021. There are lots of complex rules that businesses now need to come to terms with, many involving hidden costs, so getting the right advice and planning ahead is vital. There are some immediate Brexit-related issues that SMEs could and should address immediately.

Right to Work Checks

The adjustment and streamlining of Right to Work checks introduced in March 2020 in response to the coronavirus pandemic ended on 30 September 2022. So, as from 1 October 2022 employers either have to conduct their Right to Work checks in person or implement suitable, compliant processes through an IDSP (Identity Service Provider). The type of check you must now conduct will depend on a number of factors, such as the nationality of the worker, but you cannot dictate how an individual proves their eligibility to work in the UK.

Any Right to Work processes you have in place must be compliant and implemented consistently and correctly, otherwise Home Office enforcement action can be taken against your organisation. You can find more information at https://www.gov.uk/check-job-applicant-right-to-work and https://www.gov.uk/guidance/employing-eu-citizens-in-the-uk

Employing EU Nationals

Since 1 January 2021, companies have been required to have a sponsor licence to hire EU nationals. This is an issue for many businesses, especially the hospitality sector, which suffered during the pandemic despite extensive government support. Trade group UK Hospitality squarely blames Brexit for these problems. Potential recruits must now meet a specific set of requirements for which they gain points. Visas are then awarded to those with enough points. Businesses who need to hire EU nationals (or employees from outside the UK in general) should understand the responsibilities and steps they should follow and consider reviewing recruitment processes to ensure compliance with the new rules. You can find more information at https://www.gov.uk/guidance/recruiting-people-from-outside-the-uk.

Intellectual Property/Trade Marks

Before Brexit, you could apply for an EU trade mark which would also cover and protect you in the UK and this meant that you did not necessarily need to have both an EU trade mark and a separate UK trade mark. The Intellectual Property Office (IPO) has created a comparable UK trade mark for all rights holders with an existing EU trade mark. You can check that the IPO has created the comparable trade mark at: https://www.gov.uk/search-for-trademark. More information about trade marks can be found on the government website.

Domain Names

Those whose businesses are exclusively on-line should note that, since 1 January 2021, you are not able to register or renew .eu domain names if your organisation, business is established in the UK but not in the EU/European Economic Area (EEA) or you live outside of the EU/EEA and are not an EU/EEA citizen. If you already have a .eu domain or are considering obtaining one, you should check the eligibility criteria set out in Article 4(2)(b) of Regulation (EC) No 733/2002, as amended by Regulation (EU) 2019/517, and seek legal advice if necessary. You can find more information about domain names at https://www.gov.uk/guidance/registering-and-renewing-eu-domain-names-in-the-uk.

UK Employees Working Abroad

Since 1 January 2021, any UK employee who goes to work in an EU country will need a work permit and, in most cases, a job offer from the chosen country to get a visa to move there. Criteria for obtaining a visa may differ between EU member states, so it is important that you talk with a UK-based embassy of the country you want to work in to see what the procedure may be. You can find more information on this at https://www.gov.uk/working-abroad.

Brexit Guidance

More information about how new Brexit rules apply to things like travel and doing business with Europe can be found at https://www.gov.uk/transition, but should you have any questions or queries please do not hesitate to reach out to us. The Motion Paradox team are here to help.

Doing Business in the UK

Posted on by Jay

For many US companies looking for international growth, the United Kingdom is an attractive first foothold in overseas markets. A government keen to attract inward investment, a shared business and civil culture and the English language as well as geographic (if not political) proximity to mainland Europe all make the UK a logical choice for a base for overseas expansion.

You’ll need to understand the British legal and commercial environment, which does differ from the USA in several important respects. It’s also important to understand that the United Kingdom actually comprises four separate nations: England, Wales, Scotland, and Northern Ireland. England and Wales can still be thought of as a single legal jurisdiction, while Scotland and Northern Ireland each have their own clear separate legal systems. The Channel Islands and the Isle of Man are not technically considered to be part of the UK and they too have their own systems. In this article, our advice generally applies to England and Wales, unless otherwise stated.

Setting up in the UK

There are several issues to consider when deciding how you will enter the UK market, not least of which is, given the increase in home/remote working, do you even need a physical presence there? For most companies, ‘boots on the ground’ are essential, so deciding what company structure should be, depending on the size and permanency of your planned UK operation, is the start point.

Joint ventures or distributorship arrangements can be attractive. Operating a branch would be another option, but this is not a separate legal entity. The overseas parent company would be directly responsible for the operations, liabilities, and obligations of its UK establishment. Buying an existing UK company may not be an attractive financial option. For most US companies aiming to do business in the UK, setting up a subsidiary is probably the best option. A UK subsidiary company is a separate legal entity, distinct from its shareholders and directors, which can enter into contracts directly. This status also offers the US parent some protection from the subsidiary’s liabilities.

Incorporating a private company limited by shares is a straightforward process and Motion Paradox experts can help with completing the required forms and filing with the Registrar of Companies. A UK private company will also require articles of association (which govern the company’s administration) and can have just one director, who need not be a UK national. There must be an official UK address (the ‘registered office’). If you’re based or operating in England, the registered office must be in England. If in Wales, the registered office address must be in Wales.

A UK private company does not need to have a company secretary, but it pays to consider appointing one as company secretaries must ensure compliance with all statutory filing and reporting requirements. This too is a role where Motion Paradox can help.

Intellectual Property Issues

Protecting the integrity of the brand you have worked hard to establish and other intellectual property (IP) implications are the most frequent issues US businesses, who are thinking about expansion overseas, ask the Motion Paradox team to consider. Understanding the impact of the UK leaving the EU (Brexit) and how this affects the range of IP rights available to you is equally important. Before entering the UK market, it’s advisable to audit your IP to identify any areas that could not only be bolstered by additional protection but also how these valuable assets could be used to attract investment or perhaps licensed to provide an active revenue stream.

Copyright

The main types of IP rights in the UK includes copyright, which protects original works against copying, sharing, selling, renting, or lending. Copyright in the UK is automatic. There is no need to register and the protection usually lasts 70 years from the death of the author. The UK courts will enforce the vast majority of foreign copyrights, provided they meet certain criteria in the jurisdiction where they were created. There are also a number of international laws dealing with copyright and the USA participates in a range of them. Materials created by nationals of one signatory country will automatically be protected in all signatory countries according to their national laws.

Trademarks

Trademarks (words, names, images, sounds, slogans, and logos) can be registered in the UK and can be renewed indefinitely (subject to renewal fees). It is possible to rely on unregistered trademark protection in the UK, known as “passing off”, however this not as strong as registered trademark protection which is usually the better option in all circumstances. Since Brexit there have been changes to the registered trademark system across the UK and the EU. If trademark protection is required, two separate applications will need to be made to the UK Intellectual Property Office (UKIPO) and to the EU Intellectual Property Office (EUIPO). These separate applications involve different forms and attract different fees and costs.

Designs

It is possible to register designs in the whole of the UK, protecting the overall visual appearance of a product or part of a product. Registration with the Intellectual Property Office is required and can last 25 years (subject to payment of renewal fees). You can protect the texture, color, shape, or material and that protection is not limited to the product to which it was originally applied. Brexit has resulted in a number of changes to registered design rights. If registered design right protection is needed in the UK and the EU, then separate applications will need to be made, or an international registration that designates both the UK and the EU could be filed under the Hague Agreement.

Contracts, Compliance, and Data Protection

Companies dealing with other businesses in the UK are free to agree the terms of their trading contracts as they think fit. However, consumers have greater protections by UK law than in the US. It’s important to ensure any trading contracts with consumers comply with these legal requirements, which extend to all advertising, marketing, and sales promotions as well as rights concerning defective goods and services. To ensure contract terms are enforceable, it is important to review your standard form contract documentation before doing business in the UK.

There are a number of other important general compliance issues any UK company must satisfy concerning data protection and privacy. All providers have to comply with these data protection rules, including the General Data Protection Regulation (GDPR), which is one of the toughest privacy and security laws in the world. Everyone responsible for using personal data has to follow strict data protection principles, especially if your company participates in the UK’s ‘Open Banking’ initiative, instigated in 2017 by the Competition and Markets Authority (CMA) following its market investigation into retail banking.

Of particular importance for any firm in the financial services sector is compliance with regulations concerning ‘operational resilience’, defined by the regulators (Bank of England, Prudential Regulation Authority and Financial Conduct Authority) as the ability to prevent, adapt, respond to, recover, and learn from operational disruption.

Taxation

HM Revenue & Customs (HMRC) is the taxation authority in the UK responsible for the administration and collection of all UK taxes, including value added tax and customs and excise duties. Responsibility for the administration and collection of taxes is devolved thru the Scottish Parliament and the Welsh Assembly to Revenue Scotland and the Welsh Revenue Authority.
UK companies must pay corporation tax based on their taxable profits in an accounting period, generally paid within nine months and one day following the end of that accounting period. For larger companies (with profits of at least £1.5m), corporation tax is due in quarterly installments.

Value Added Tax (VAT) is charged on the supply of goods and services made in the UK. Registration for VAT is compulsory where a company’s taxable supplies for the preceding year exceed the threshold (at the time of writing VAT has been frozen at £85,000 per year until 31 March 2024) or it is likely that its taxable supplies in the next month alone will exceed that threshold. The general rule is that all supplies of goods and services are subject to VAT at the standard rate (currently 20%) unless they are exempt or subject to VAT at a lower rate.

There are however a number of tax incentives to doing business in the UK as well as significant reliefs for qualifying spending on research and development for example. Motion Paradox work with a number of tax specialists and this team can assist you thru the UK tax regime.

Employment Differences

Generally speaking, UK employee rights are stronger than in the USA. The law imposes certain minimum requirements, such as the national minimum wage which is higher than the federal minimum wage of the USA but lower than the minimum wage set by some US states. Women are legally entitled to be paid the same as men doing work of equal value (and vice versa). A UK employer also has a duty to make reasonable adjustments to help disabled employees overcome the disadvantage caused by their disability in the workplace.

All employees and workers are entitled to receive a written statement of specific terms and conditions of employment on or before the date their employment commences. This statement or contract of employment must contain some key terms such as the name of the employer, employee job title, rate of pay, hours of work, disciplinary and grievance procedure, holiday entitlement, and notice periods.

Employees are also legally protected against discrimination, harassment, and victimization on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, gender, and sexual orientation. Discrimination can be claimed at any stage of the employment process and if an employee’s case for discrimination is successful, the employer can be ordered to pay unlimited compensation. US companies should therefore be aware of the rights of UK workers before they commit to opening up operations.

Helping you do Business in the UK

Our team at Motion Paradox can help you do business in the UK, which remains one of the easiest countries in which to conduct business. The World Bank Group regularly ranks it as the eighth most business-friendly country in the world from a regulatory and legal standpoint. London is one of the world’s financial and investment centers while the nations and regions of the UK offer a highly skilled workforce with labor laws that are more flexible than many other European countries. For any ambitious North American company, the UK is an ideal market of some 67 million people with easy geographical access to the rest of Europe and the convenience of an English-speaking country.

Carry on Carrying over Holiday Entitlement?

Posted on by Jay

What should be your approach to carrying over holiday entitlement now, as we seem to be emerging from the worst of the pandemic? How should employers handle leave ‘carry over’ requests from their workers when what was a public health emergency is being replaced by the prospect of much tougher financial circumstances. A trading environment that may require ‘all hands to the pump’ for longer than usual as much as Covid ever did?

Maintaining (or better yet improving) productivity while ensuring that your workforce is committed and content and keeping within the law will require sound professional advice and good judgement for many businesses. It could be a matter of survival for many smaller companies.

The old rules on the ‘carry over’ of annual leave

The Working Time Regulations 1998 set out that all workers (including employees) are entitled to a minimum of 5.6 weeks of paid annual leave. Under the law of England and Wales (other jurisdictions may differ) employers are obliged to allow their workers to take leave within each ‘leave year’, unless they could not do so because of sickness or statutory leave such as maternity leave. In those circumstances, leave was to be carried over to the next leave year. The 2018 Supreme Court Pimlico Plumbers judgement also confirmed that the same holiday entitlement and pay rights apply to those supposedly ‘self-employed’ in the gig economy who are legally ‘workers’.

Rule changes in response to Covid-19

In March 2020, the government passed emergency legislation aimed at allowing businesses the flexibility to respond to the pandemic while also safeguarding statutory holiday entitlement rights. The Working Time (Coronavirus)(Amendment) Regulations 2020 allowed workers to carry holiday forward because it was not ‘reasonably practicable’ to take it in the leave year to which it related due to Covid. In those circumstances, the untaken amount of leave could be carried forward into the following two leave years.

This would apply to employees who were ill, self-isolating or were ‘frontline’ staff or key workers asked to continue working, but workers who cancelled holidays because of travel restrictions would not covered by the amended regulations – they could still have taken a break from work.

What are the rules now?

It seems logical for employers to assume that, since the maximum carry over provision in the March 2020 legislation was two years, these emergency Covid-inspired rules ceased to apply in March 2022, but that is not the case. There was no ‘expiry date’ given in the amended regulations. The right to carry over leave for two years appears to be ongoing, at least until Covid is considered not to be a critical public health issue or the amended 2020 regulations are repealed.

Handling carry over requests

Provided it is not going to seriously damage your business, it is probably best to accommodate requests for carry over leave whenever possible – if not all, then at least part of any accrued leave – as a gesture of goodwill to acknowledge the efforts of your people.

Such a move could help to boost staff morale, delivering an even more committed workforce for the future. West Lothian Council in Scotland has done just that by giving all council employees an extra day’s holiday as a ‘thank you’ for their efforts during the pandemic, describing the extra day as ‘recognition leave’.

Precisely when any carry over leave should be taken is also a matter for agreement within the company, as the amended regulations do not specify how and when carried over leave must be taken. Government guidance merely suggests that best practice is to give employees the opportunity to take it at the earliest opportunity – i.e. in the first year after the holiday has been carried over – if practicable.

Business critical considerations

If the absence of key workers at key times would damage your business, then the March 2020 amendment to the regulations means that employers can still tell workers when they would prefer them take their holiday. At least twice as many days’ notice as the length of the workers’ proposed holiday would have to be given, but this requirement can be waived if the worker and the employer agree.

The current regulations also give employers the right to ask workers to cancel carried over leave but only if there is a ‘good reason to do so.’ Some businesses may be tempted to encourage employees not to carry forward leave by ‘buying it out’ but an employer remains legal obliged to facilitate their employee taking annual leave and cannot replace it with a ‘payment in lieu’.

Carry over leave may also impact some aspects of your business more than others, so the temptation might be to treat requests from different departments differently. However, if you have an all-female team in one department for example, you could face a discrimination claim on gender grounds if you refuse carry over which is permitted elsewhere in the business. If you must apply different approaches to different teams, it is important to be clear on the rationale and document it, but it is always preferable to apply a consistent approach across the whole firm if you can.

Motion Paradox experts can advise about approaches to keep your business on track and your workforce on board. More general information about holiday entitlement can be found at https://www.gov.uk/holiday-entitlement-rights while the Advisory, Conciliation and Arbitration Service (Acas) can give employers free impartial advice on workplace rights, rules and best practice.

Learn more about how a human resources audit by Motion Paradox can uncover any potential issues that exist within your company’s HR policies and practices.

Co-Founders: What Happens When It Goes Wrong

Posted on by Jay

Every co-founder situation is different, but one common problem, especially in start-ups, is how to handle co-founder disputes which can damage progress or even lead to company failure. The problem isn’t unique, even though it may feel that way to the individuals involved in conflict.

Harvard Business School professor Noam Wasserman writes in his book “The Founder’s Dilemma” that 65% of high-potential firms fail due to disputes among co-founders. At Motion Paradox, that has been our experience too. Many of our clients come to us because of this issue. They stay because they recognise we help with other problems.

A co-founder is more than just a business partner. They’re someone with whom you plan to cultivate a long-term relationship, but, as with any relationship, that partnership may not work out. There could be a straightforward personality clash, or business goals might no longer be in sync or questions might arise about commitment to the business. It’s another aspect of the ‘motion paradox’ that many businesses, especially start-ups, face.

Real World Consequences

When a dispute becomes serious, there could be longer term implications for any business. For example, Zipcar is an American car-sharing company offering vehicles billable by the minute, hour, or day for a fixed membership fee. Now a subsidiary of Avis Budget Group, long before Zipcar became a hugely successful business, without seeking professional help, founder Robin Chase entered a 50/50 equity split with her co-founder Antje Danielson.

When their relationship soured shortly after they went into business, Chase and her co-founder parted company, but Danielsen still retained half of the company she was no longer helping to build. Apparent success will also temporarily mask co-founder problems. Things might be going wrong underneath and you won’t be aware of it. When a co-founder dispute becomes so serious that it’s damaging the business, it can be extremely difficult to see any good options.

Plan to Prevent Problems

The first approach to avoid these problems is to focus on preventing conflict, rather than trying to fix it when a lot of the mental, emotional and financial damage has already been done. It can be useful for both parties to document what each expects from the setup, but the most positive step you can take is to be open to early professional advice, recognising that disputes and disagreements are inevitable, in the early days of the business and throughout its lifetime. Getting professional advice early on can identify actionable, practical solutions to put, and keep, the business on track.

Motion Paradox experts can advise about implementing strategies to avoid destructive conflict, because we believe differences of opinion can be constructive. As soon as the company is regularly engaging in commercial activities, we can suggest the processes and create the documentation, such as a shareholders’ agreement, that will provide the mechanisms for dealing with and resolving any disputes.

Typically, a shareholders’ agreement specifies how equity will be shared, IP ownership, pre-emption on issues of new shares/transfers of existing shares, restrictive covenant obligations, what happens to the equity if a co-founder quits, a structure for how decisions will be made (including board appointments) and deadlock provisions.

Dealing With Problems

Even if all these steps to prevent damaging disputes are taken (and certainly if they are not) problems that are seemingly irreconcilable may arise. One useful strategy in these circumstances is to use an independent third-party to mediate your dispute and suggest a resolution. This works of course if both parties are prepared to abide by whatever conclusion the neutral mediator may suggest.

Smoothing Co-Founder Exit

If none of these preventative measures and approaches work and mediation proves impossible, the business will have to face up to the fact that one person needs to exit. There are a number of reasons why a co-founder might leave your business and it is certainly not an uncommon event in the start-up world. Despite your best efforts, if things have reached this stage, then it is usually more beneficial in the long term to simply end the relationship than to try and convince your co-founder to stay on.

Motion Paradox can help smooth the exit of a co-founder, by negotiating on behalf of the company to ensure the relationship is terminated fairly, with full transparency, and as little damage to the business as possible. Getting professionals involved in this final act will also avoid mistakes and potential legal problems in the future.

Professional Advice for Every Eventuality

A co-founder leaving your start-up can feel like a big loss, but it certainly does not have to mean the end of your journey. Every team experiences disagreement at some point. If it doesn’t, chances are destructive conflict is brewing beneath the surface and may erupt at the worst time possible.

Motion Paradox can advise on how to prevent these disagreements from becoming toxic and implement processes to manage disputes when they arise. We can help mediate disputes to achieve a positive resolution, but if that proves impossible, we can help mitigate the impact of a co-founder exit.

But things don’t have to be this dire before you consider getting our professional help on board. Athletes have coaches and trainers who help them get to peak performance. Motion Paradox can do the same to help tune up your business.

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Copyright Motion Paradox Consulting Limited 2024. Motion Paradox Consulting Limited is a limited company registered in England and Wales. The company number at Company’s House is 10645866. The registered office address is: 52-60 Tabernacle Street London EC2A 4NJ, United Kingdom. Motion Paradox Consulting Limited is a company providing only unreserved legal services and is not regulated by the Solicitors Regulation Authority (SRA).

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