What should founders think about in terms of law? An interview with Stephen Sykes - a lawyer and entrepreneur

Written by Felix Franke, edited by Ambisha Sarvananthan and Josephine Pepper.

In this interview, I talk with Stephen Sykes about what founders have to keep in mind, from a legal point of view, when starting their company. Stephen is a lawyer at The Sykes Partnership LLP who specialises in environmental law. He has also extensive experience with founding companies himself, from insuring environmental liabilities (Certa UK Limited, Ashfield Risk Transfer Solutions) and sustainable glamping (Tree Tents International) to online dating (Blind Cupid). He feels at home in the data, consulting, insurance and sustainable design sectors and shares his do-s and don’t-s for making sure your startup stays on the right side of the law.

Hello Stephen!
After reading about all your undertakings, I was wondering: are you more a lawyer or an entrepreneur?

I would consider myself to be half lawyer and half entrepreneur! Environmental startups have been my life’s work.  It is very satisfying to take an idea and make money, employ people, have happy customers/clients, do something beneficial for the environment and generate tax for the greater good of the country.

Did you experience different law-related challenges for the different startups or is there a lot of common ground when businesses are starting out?

There is definitely a lot of common ground. One thing, for example, that is common to any business is that you have to decide on a legal structure. Is it a non- or for-profit venture? You have to decide whether it is most advantageous to set it up as a partnership, a limited liability company, a sole trader, etc. There are tax and liability differences with each of these options. Every business also requires key contracts: terms and conditions for trade, employment contracts, service agreements, leases and so on.

If you just started working on your company, do you really have to consider all of these factors at the beginning?

Making legal mistakes at an early stage can be very costly later on. At an early point you have to decide on the name of the company. You start with a preferred name and check with Companies House website if anybody else has bagged that name. You can also go on Google and check whether the domain name is gone. That also drives you to make a decision about what kind of structure you want to have. These both go hand-in-glove with what kind of business you want to create. You also need trading agreements and you have to have service agreements in place for your fellow directors. There are free templates available on the internet but don’t replicate them as they are drafted for other companies. The fine details really matter. You have to modify them and you will need some legal guidance when you go through this process.

So, you don’t recommend trying to do it yourself?

The thing is, law is a really specialised area. Your business could involve complex questions of property law, employment law, commercial law, intellectual property law and so on. It’s not a place for amateurs.
If you only have a couple of thousand pounds at the beginning to get your idea off the ground you won’t be able to afford a lawyer, realistically. But if you got, say, at least a few tens of thousands together, I recommend investing some money, perhaps a few thousand pounds, on a commercial lawyer to get some good advice early on. That amount of money seems a lot in the beginning but it can save you heartache down the line.
Talk to two or three lawyers before you choose one. It may be that you know someone that can recommend a good commercially-minded lawyer. You could think about having a lawyer as a chair or as a mentor and giving them a very small slice of equity stake or just a few share options in the venture if cash is really tight.

From your own experience, what are the two most common legal factors that founders don’t think about enough?

Founders of companies are the most positive people on the planet. I know – I’ve done it often enough. You have to be an optimist if you want to do a startup. But you also need to think about the downside – asking the “what happens if” questions, even though that is counterintuitive for an entrepreneur.
In two of my ten start-ups, I have experienced people letting down the team. People that you thought you knew and trusted might not have the stomach for the fight; they might take another job or just turn out to be incompetent. You have to have a mechanism in place to get those people out of the business without destroying it. The other thing founders often don’t think about, or are not specialised in, is tax and finance. Founders need to keep an eye on the value they are creating, and how to minimise the tax they will pay when they wish to realise that value. Bear in mind that taxes change with great regularity so you need to keep on top of this and take advice from a tax lawyer or an accountant.

Do you see any special challenges for life-science based startups?

Life sciences is a broad term which can encompass some of the environmental ventures I have set up over the years, but it is a sector that lends itself to patents, more so than many other areas. Get yourself an intellectual property lawyer or a patent agent to protect your innovations and, hence, the value of your enterprise.
The other thing with life sciences is that some businesses will require permits and licenses to operate and will be regulated under specific areas of the law. So you will need to get a very good understanding of this and make sure that you are compliant and that you hold onto your permit.

What would you recommend to founders that don’t have as much insight into these law-related topics and are anxious to dive into it?

You should know in broad terms which laws apply to your business and are relevant to your dealings with your customers. In my glamping business (Tree Tents International), for example, we make structures that we manufacture in the UK and install in different countries. Our customers sometimes need planning permission to have those structures located on their land. We need to understand their legal framework because we don’t want our customers to fall foul of planning laws. They often ask us if they need planning permission and we know how to answer that question. In general, it is important to recognise at what point you are out of your depth when it comes to complex legal matters and, hence, when you need some professional legal help. For instance, if a multimillion-pound contract comes in, get a lawyer to read it, as this could potentially have serious legal repercussions if you are in breach and could be a big liability if something goes wrong.
Most importantly, don’t be in awe of the law. Law should be seen in its proper place – it is the servant of business, not the other way around!

Do you have any last words of advice?

A startup is like a fragile flame: it can be extinguished by a breath of wind from any direction, especially pre-launch. It could be extinguished by a legal action from a competitor who tries to close you down before you even get going.
Having someone alongside you for a second opinion on law and business strategy and practicalities, like a mentor, can be hugely valuable. Lawyers can make great mentors, as long as they have practical wisdom, commercial instinct and a gift for problem solving.

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