Startups, Scaleups, and Slip-Ups: The Legal Pitfalls That Could Sink Your Business

13 Feb

So, you’ve got a brilliant idea, a killer pitch deck, and a trendy co-working space. You’re ready to launch the next big thing—until legal trouble stops you in your tracks.

From dodgy handshake deals to GDPR nightmares, startups often overlook the law until it’s too late. Here’s how to avoid the biggest legal slip-ups before they cost you your business.

1. The “Handshake Deal” Disaster

You and your co-founder agreed on a 50/50 split over a coffee. Simple, right? Wrong. Without a shareholders’ agreement, what happens if one of you wants out? Or if you disagree on the future direction? Clear agreements from day one prevent expensive disputes later.

2. Intellectual Property Nightmares

You’ve paid a freelancer to build your app—so you own it, right? Not necessarily. 

Without a contract stating that all intellectual property rights in the work is assigned to you”, the freelancer legally retains ownership of your branding, code, or content. Ensure all intellectual property (IP) rights belong to your company, or you could lose control of your own product.

3. The Employment Law Time Bomb

Startups thrive on an “all hands on deck” culture, but UK employment law still applies. Failing to issue proper contracts, misclassifying employees as freelancers, or underpaying staff can lead to costly tribunal claims. Even unpaid internships must meet legal standards. Don’t assume you can “sort it later.”

4. Fundraising Fiascos

An investor is offering six figures—amazing! But before you sign, do you know what you’re agreeing to? Many startups rush into investment deals only to find they’ve handed over too much control, locked themselves into bad terms, or made exit plans impossible. Always get a lawyer to review investment agreements.

5. The UK GDPR Trap

If you’re handling customer data, UK GDPR applies. That means securing consent, protecting user information, and having a clear privacy policy. The ICO doesn’t care if you’re a small startup—data breaches and illegal marketing practices can lead to fines and damage to reputation.

6. The “Terms & Conditions? What Terms & Conditions?” Problem

Your terms & conditions (T&Cs) aren’t just fine print—they’re your legal safety net. Without them, customers could demand refunds you never planned to offer, or investors could challenge your business model. Copying T&Cs from another website won’t cut it—get them tailored to your business.

Final Word: Startup Smart

Legal mistakes can kill even the best business ideas. Getting the right legal foundations in place might not be exciting, but it’s far cheaper than fixing problems later. Before you scale, make sure your startup is built on solid ground.

For more information contact Deborah.Tastiel@asserson.co.uk