10 essential legal documents for UK startups
Learn what these essential documents are for and why you need them to start, run and grow your business.
This article was written by our friends at Hiscox Insurance.
More people are following their dreams of starting their own business, with registrations on the rise. A new generation of post-pandemic entrepreneurs will rightly be celebrated. But anyone choosing to launch their own business also exposes themselves to new types of risk compared to their previous life as an employee.
That makes insurance a key consideration. And, as experts in business insurance, we at Hiscox have produced this guide to help you better understand start-up insurance, the instances in which cover can help, relevant types of insurance and more.
To give some context around the start-up market in the UK, things are booming, with official government data recording almost 4.9 million incorporated companies on the total register, up 21% on the same quarter of 2020.
The tech sector is thriving. There was a £29.4 billion investment in UK tech start-ups in 2021, a rise of £17.9 billion from the previous year.
There are many start-ups raising funding in the UK. For example, the government’s Seed Enterprise Investment Scheme (SEIS) helps entrepreneurs raise money to help their businesses get off the ground.
The scheme helped more than 2,000 UK businesses raise a cumulative £175m between 2020 and 2021, with 1,660 of those taking part in their first funding round. But where was the funding going? Around two-fifths of the £175m total went to information and communication businesses, backing up the previous stats on soaring tech investment in the UK.
Launching a startup is an exciting move. However, it also means much of the responsibility that was once with your employer now sits with you.
Therefore, legal and financial liability is yours as well. Having business insurance in place can help protect you and your startup. It may also provide the reassurance you need to focus on scaling your idea.
Setting up your new business is an exciting time. But even in its infancy, before you take on clients or start trading, there can be risks. It’s a good idea to get insurance for your startup even before it’s officially registered.
That way, you’ll have cover for unforeseen circumstances while you lay the foundations of your new business. Why could this be helpful? Because you’re likely to invest your money before you launch the business.
For instance, you might need a laptop or specialist kit and equipment to get moving. With the appropriate insurance policy in place, it will help protect these items if they become lost, damaged or stolen.
When responsibility for finances and legal obligations falls at your door, unforeseen problems could prove damaging without cover. Having insurance from day one means you’ll have the support as a startup owner to concentrate on building your product or service.
Many types of insurance may be relevant for startup businesses across sectors, but the following three could be considered key covers across the board.
Professional indemnity insurance can offer a startup founder vital backing from day one of trading. When you’re a small venture, your reputation is incredibly important and, while building it can take time, damage to your standing can happen in an instant. A client could say your advice was poor and resulted in negative consequences for them, or they could say there were faults with your work.
Professional indemnity insurance can safeguard your startup against legal costs and compensation payments resulting from claims.
When could professional indemnity insurance help?
Anyone can bring a public liability claim against a business, whether you work with them or have come into contact with them due to your work. Should someone fall ill, become injured or if their property is damaged because of your business activities, they could file a claim against your company.
Public liability insurance can cover you for legal costs, compensation and expenses for these instances. Product liability insurance is also included within this cover – so, if your startup is focused on designing, producing or supplying products to customers, this can be helpful.
When could public liability insurance help?
Initially, your startup might be just you – but, as things grow, your workforce may increase. In the UK, in most cases, employers’ liability insurance is required by law for any business that employs people. This cover can step in if an employee makes a claim that an injury or illness is due to the work they do for you.
If an employee files a claim against your startup, and the case ends up in court, you could have cover for legal costs and compensation pay-outs if you have Employers’ Liability in place.
When could employers’ liability insurance help?
While these three insurance types can provide key startup cover, others may be relevant for your circumstances. Your startup might be focused on tech and in need of cyber and data insurance, or a digital marketing company in its infancy requiring cover for the building or contents of the office. When you work alone, personal accident insurance can also offer reassurance that you’re protected if you become injured and unable to carry out your duties.
Every business is unique but whatever your specific needs around insurance, Hiscox can help you every step of the way, with the experience and expertise you expect from a leading business insurer.
“We’ve been working with start-ups for over 20 years,” says Pete Treloar of the Commercial Underwriting team at Hiscox.
“This has given us a great insight into designing insurance policies that are tailored to their needs. Our policies are built to give you the confidence that if the worst should happen, we will be there, allowing you to focus on what you do best.”
There are several reasons why it’s important for your start-up to secure investment, including:
Startups also go through different stages. These are:
While you’re at the different stages of financing your startup, your insurance needs may adjust. For example, as you move from Seed and into Series A territory, you may want to build your workforce and obtain employers’ liability insurance. Or your cover limits may change on a policy you already have. Expanding into a bigger office? You might need more cover for your building and contents.
Whatever raising round you’re in, investment can change your business – and your insurance needs. However insurance could also be beneficial in securing that all-important injection of funds.
Because investors want more than a great idea.
They need to know you’re sensible as well as savvy. You’ll need to demonstrate you’ve robustly considered the risks to your business – and taken the appropriate steps to mitigate them.
Speak to a Hiscox expert today on 0800 781 3052 (Mon-Fri, 8am-7pm, excluding bank holidays) or find out more about our business insurance products, including a 20% discount for SeedLegals members.