Nic Murfett, associate at law firm Harbottle & Lewis, describes the legal pitfalls that new studios need to avoid when setting up shop
When setting up a studio, there are a number of legal issues to consider. But provided that you know what to look out for and plan ahead, there really isn’t anything that need keep you awake at night.
So, what are some of the main issues that you will need to consider and the most common mistakes you should avoid?
Trademarks and Domain Names
Carry out trademark searches by using www.ipo.gov.uk to check that somebody else hasn’t already registered the intended name for your studio. If they have, choose another name. If they haven’t, consider registering it but first discuss the costs and benefits with a lawyer.
A common misconception is that registering a company at Companies House ensures that the name is protected as a registered trademark. This is not the case.
Consider also searching for domain names that use your studio’s name via whois.net. If the .com intended for your studio isn’t available, someone else may already have your studio’s name as a trademark – perhaps as an unregistered trademark or one registered outside the UK. If the .com is available, consider purchasing it and any other variants you can afford – .net, .co.uk, .org, and so on.
Setting up a limited company brings with it various benefits, including limited liability. Incorporating a limited company is relatively straightforward and can be done in a matter of days. You will need to ensure that your studio’s incorporation documents and Articles of Association are filed with Companies House.
If your budget is tight, you may wish to consider adopting a do-it-yourself approach to incorporation. You can also consult companieshouse.gov.uk for more information. Once incorporated, your studio will have to pay corporation tax on its profits and so will need to register with HM Revenue &?Customs.
One of the most common misconceptions about incorporating a limited company is that making a shareholders’ agreement is an immediate requirement.
In fact, if you are seeking third-party investment or are likely to do so, instructing a lawyer to draft a shareholders’ agreement may be an unnecessary expense. Investors will invariably make their investment conditional upon any existing shareholders’ agreement being amended to reflect their (often extensive) demands.
In the absence of a shareholders’ agreement, shareholders are still protected by law in certain respects. For example, two shareholders each with a 50 per cent shareholding would automatically have joint voting and decision-making rights.
As your studio’s success is intrinsically linked to your IP, make sure that anyone (including family and friends) who undertakes work for your studio assigns their IP rights to your studio. Without this, the IP rights in any such work would be owned by the individual who created it – unless they are an employee, in which case their employer will own them.
Also, although contracts can be established orally, IP rights cannot be legally assigned unless the assignment is in writing. You therefore need written contracts. Your studio’s contracts should also contain robust confidentiality provisions to prevent any confidential information being disclosed to third parties without your consent.
If your studio employs any staff, it will be legally required to obtain employers’ liability insurance. If it does not do so, your studio will be liable to a substantial fine for every day that it remains uninsured.
Tax effective employee incentives, such as EMI options, can help align the interests of your employees to the success of your studio. Options can be very tax efficient and help incentivise employees without the costs of salaries and bonuses. For more information on such schemes, check out hmrc.gov.uk or contact a lawyer.
When thinking about how to raise seed finance for your studio – including if you are getting any financial support from friends and family – consider the Seed Enterprise Investment Scheme. This is a tax incentive designed to help smaller companies in their early stages raise equity finance by encouraging individuals to invest in them.
It’s very generous, and offers income tax relief at a rate of 50 per cent of the invested amount, irrespective of the income tax rate that applies to the investor. Although the maximum amount that can be invested in a company is £150,000, this could be extremely significant in helping to launch your studio.