Legal grounding

Mike Exon summons up three key legal professionals working closely with the design sector for some useful guidance for would-be design start-ups

Ask any lawyer and they will tell sorry tales of ill-prepared businesses falling at the first fence. For most people setting up on their own, the prospect of spending money consulting a lawyer might not be very appealing. But, if you don’t consult them at the beginning you could end up paying for their advice later if things go wrong. Roger Alexander, Darrell Stuart-Smith and Simon Clark provide food for thought.

Starting a design consultancy

Roger Alexander is senior partner at Lewis Silkin Solicitors

If you go to a good commercial lawyer you should be able to get business advice of a general nature. If you go to one who has considerable experience of acting for clients in the industry, you may get more specific advice which may assist you.

Getting professional help

Only deal with professionals with whom you feel you can build up a good, long working relationship, people who you trust and who have experience of your kind of business. If necessary, ask for references.

Naming your design group

Unfortunately, creative minds can think alike. This can cause particular problems when a new agency launches itself with great fanfare under its painstakingly considered name, only to find itself having to rebrand itself following a threat of legal proceedings for infringing another business’ rights in that name or a similar name.

To avoid red faces and large legal bills, consultancies should not overlook the practice of carrying out trademark searches before a new name is adopted, as well as checking to ensure all necessary corporate and Internet domain names are available.

Deciding who the principals of your business will be

There are a number of things to be considered here. Do you trust the people you plan to work with, do you rate them as people to run a business with you, can you work with them, do you want a business marriage with them? To begin with, the principals need to decide why they want to start up a business, what is their motivation. And they need to draw up a proper business plan.

Articles of Association

It is advisable to draw up Articles of Association. These are the rules governing the way in which the business is run and are a contract between the company and its shareholders. It is a public document and cannot be altered without a 75 per cent voting majority of the shareholders.

Shareholders agreement

This is a private document and would principally regulate what decisions can be made by the board of directors, with the consent of a specified majority of the shareholders.

You need to decide what will constitute a majority for certain decisions. It needs to be remembered that the shareholders may be different people from the directors.

For board votes, each director has one vote, then, for shareholder votes, shareholders will be able to vote according to the number of shares they hold. For example, if the business wants to take on new premises, fire a director or a client, you need to know this will require a 75 per cent shareholder vote of approval, as well as a majority decision of the board.

Basic paperwork

Darrell Stuart-Smith is partner in the commercial department of Humphries Kirk, solicitors to the Design Business Association

Getting the right contractual paperwork in place can save a new design consultancy time and money and is best done even before you start working for clients.

Conditions of contract (supply)

Any work that the consultancy carries out will be undertaken under a contractual relationship and there are overwhelming commercial reasons for the terms of this contract to be clear and concise. This is only likely to happen where standard conditions of contract are incorporated, before the contract has been entered into, by both parties involved.

These conditions should be written in plain English, be short and be fair to both design consultant and client. Without them there will be uncertainty about the scope of the service, the treatment of intellectual property rights, limitation of liability, and so on.

Conditions of contract (purchase)

Inevitably, your design consultancy will need to buy goods and professional services. This will be undertaken through a contractual relationship. The consultancy needs to protect itself and make reasonable stipulations about this.

Freelance contracts

You will probably have to pay for freelance photographers and illustrators, or use self-employed designers from time-to-time.

It is important that the relationship with these people is properly controlled, so as to ensure your consultancy receives all intellectual property on behalf of your clients. This can only be done properly through a written contract.

Employment contracts

The law is very clear that within two months of joining your design consultancy, employees are entitled to receive at least a written statement of the particulars of employment. The law goes further and sets out exactly what needs to be covered in such a statement or contract.

Failure to address these issues will result in uncertainty in the relationship with employees and could leave your consultancy vulnerable to a claim from an employee.

It is also important to have a clear grievance and disciplinary procedure. It has become appropriate for a business to have various policy statements, recorded in writing – dealing with a variety of issues including information technology matters, travel expenses, and so on.

Stationery

Legal stipulations cover stationery and the disclosure of basic information, relating to sole traders, partnerships and registered companies.

Insurance

Whereas all companies are required to carry employers liability insurance, there is no legal requirement that a consultancy should insure against claims arising in connection with the provision of its services. There are brokers who specialise in dealing with design consultancies and who are able to provide a combined policy encompassing employers liability, third party liability cover and professional indemnity cover.

Ownership of design work

Simon Clark is a partner in the intellectual property department at Theodore Goddard, and is a director of Anti Copying In Design

When setting up a new design consultancy, one of the first and most important things you should be aware of is the ownership of the intellectual property rights. These relate to the designs that you are commissioned to produce, as well as any creative work that you intend to use in-house.

These designs are the most valuable assets of your business, and yet all too often, design consultancies unwittingly give away the rights in their designs without realising it, or never own those rights in the first place.

If you are commissioned by a client to produce a work that is protected by design right, then your client rather than you, the designer, will own the rights to those designs. This is because the UK law states that the company or individual that commissions a design, often the client, is the first owner of the design right in any design created “pursuant to a commission for money or money’s worth”.

Knowing your rights

Almost all three-dimensional designs are protected by design right, so this will almost certainly apply to some of your designs (see Design Business DW 29 March).

The position is different for works that are given copyright protection. If you are commissioned to produce a copyright work, you, rather than the commissioner, will be the first owner of the copyright in the design.

This difference often leads to problems. For example, surface decoration, such as a floral fabric used as upholstery for an armchair, is protected by copyright. Whereas the shape of an article, such as the armchair itself, will be protected by design right. If you were paid to come up with the design for use by your client, then the design right in the shape will be owned by your client, but the copyright in the surface decoration would be owned by you. So two (or more) different parties may own different rights in the same design.

To avoid the possibility of not owning all the rights in your designs, you must ensure that you enter into binding legal agreements with all clients, which they must sign, that assign any rights in the designs which they may own, to you.

Freelance staff

Similar problems can arise if you use freelance designers. If an employee of your consultancy creates a design in the course of their employment, you as the employer, rather than the employee, will be the first owner of both the copyright and the design right in the design.

However, if the design was created by a freelance designer for you, they will own the copyright in the design they produce for you – unless you can successfully argue that there was an implied agreement that you would own the copyright (which is very difficult to prove if there was nothing in writing).

To avoid such problems arising, you need to draw up a standard form agreement. This agreement should be signed by both parties and will assign the rights to you.

Solicitor costs

Fees vary for legal advice according to the services required. Information on rates is usually confidential information. Most legal firms will charge for any time provided, but trade organisations such as the Design Business Association and Anti Copying in Design offer their members a free half-hour of legal advice.

Further Contacts

The Patent Office – for trademark searches, information on design and the law, copyright, patents

www.patent.gov.uk/design

Design Business Association – The DBA runs Design Law workshops and refers its members to Humphries Kirk

www.dba.org.uk

The Law Society – the professional body for solicitors from England and Wales offers news, research tools and advice on all aspects of English law. It lists solicitors by specialism and also offers on-line legal services

www.lawsociety.co.uk

Companies House – for on-line searches of company names and addresses

www.companieshouse.co.uk

Anti Copying in Design – Acid has good advice on copyright issues on its website and runs a legal advice hotline (020 7880 5742)

www.acid.uk.com

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