Legal mistakes business owners make: records, copied terms and unregistered trade marks

The biggest legal threat to a small business is often a mistake the owner does not know they are making. One wrong move can set a business back years, and some of them turn the owner into an offender without anyone noticing. From what I see in practice, there are three legal mistakes that a lot of UK business owners are making: failing to keep the records the Companies Act requires, trading on terms of business copied from the internet or a competitor, and not registering their trade mark. The third one is the mistake that can allow a third party to legally take everything from your business.

Statutory registers and Companies Act records

The first mistake is not complying with the Companies Act when it comes to keeping internal registers of the company, keeping board minutes and keeping written records of shareholder resolutions.

If you are operating a limited company in the UK, you are legally required by the Companies Act to maintain internal registers. These registers reflect important information about the company, such as:

• who the shareholders are;
• who the directors are; and
• who the people with significant control (PSCs) are.

That is only part of it. As the directors and the shareholders of the company make decisions and hold meetings, you must keep written records of those decisions, and you must hold on to them for at least 10 years. Board minutes record what the directors decided; written resolutions record what the shareholders decided.

Not doing this is an offence, and it can carry unlimited fines. In my experience most owner-managed companies have never set up a statutory register at all, and their board decisions exist only as a conversation nobody wrote down. If you are in that position, how to draft board minutes explains how to record the decisions properly.

Using template or copied terms of business

The second main mistake is where business owners have, as their terms of business, a template they downloaded from the internet or copied from a competitor's website.

This is a big mistake for two reasons.

• A template from the internet is not bespoke to your business. Your terms of business are the contract between you and your customers, and their job is to limit your liability for the specific things that can go wrong in your business. A generic document written for nobody in particular will not do that.
• Copying a competitor is likely copyright infringement. If you have taken your terms of business from a competitor's website, you are very likely infringing their copyright in that document. The terms that were supposed to protect you become a liability of their own.

If you want to understand what properly drafted terms should contain, see how to write a contract and the wider set of documents a new business needs in legal documents you need to start a business.

Not registering your trade mark

The third main mistake concerns your business's most important asset: its brand.

You have spent a lot of time and money marketing your brand. You have put in the work to make sure people get a good service or a good product. All of that builds goodwill in your brand name. And yet, if you are reading this, there is a good chance you have not registered your trade mark with the UK IPO.

Why the first to register wins

The reason this is such a big issue is that the UK operates what is called the first to register principle. That means the first person to register a brand name becomes its legal owner. It is not the first person to use the name, or the person who built the goodwill in it. It is the first person to register it.

What happens if someone else registers your brand

Suppose a third party now registers your trade mark. Once they have it, they can send you what is called a trade mark infringement letter. The letter states that you are infringing their trade mark, and it asks you to shut down your business and stop using the name, because the name is now legally theirs.

That can be catastrophic for a business. If you decide to challenge it, you need to go to court and spend a lot of money and a lot of time to maybe win, and winning is probably unlikely. The years of goodwill you built are attached to a name that somebody else owns.

If you want to avoid this issue, you need to register your trade mark. The process is set out step by step, with a template, in how to register a trade mark in the UK in 5 steps.

The three mistakes at a glance

• No statutory registers or written records. A Companies Act offence with unlimited fines, and one most small companies commit without realising.
• Copied or downloaded terms of business. Terms that do not limit your liability for your actual risks, and possibly a copyright claim from the competitor you copied.
• An unregistered trade mark. The brand you built can be registered by someone else, who then becomes its legal owner and can demand you stop using it.

None of the three is expensive to fix in advance. All three are expensive to fix afterwards.

Next steps

Deal with the three mistakes in order of how quickly they can be fixed. Set up your statutory registers and start keeping written records of board and shareholder decisions, and keep them for at least 10 years. Replace any copied or downloaded terms of business with terms drafted for your business. Then register your trade mark with the UK IPO before someone else does. If you are unsure whether your records or your terms are compliant, speak to a commercial solicitor.