Legislate: The Importance of Creating Contracts and Understanding Legal Risk

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Scaling businesses have a lot of things going on at once, and they often find themselves behind on some processes, or needing to skip forward on others. But there are certain things that need to be done thoroughly, no matter which sector you’re in.

Charles Brecque, Founder and CEO of Legislate Technologies offers his insight into the importance of founders and scaleups understanding legal risk, legal safety, and carefully curating legal documents and contracts for employees and clients alike. 

Because, let’s face it - there’s no such thing as being over prepared when it comes to protecting your business and its employees.

Charles’s background is in engineering and business development, and it was while doing business development at a scaleup that he became aware of friction with lawyers and legal teams.

As the middleman in the content creation and negotiation process with clients, he says it always seemed to take a long time for legal to review contracts or approve amendments on both sides of the table.

He says: “We would sometimes lose opportunities and contracts post legal negotiation, because they would have taken so long.

“Legislate came about to empower the business user to create and amend those contract mistakes in a robust way, without needing to get legal so that they can get on with the purpose of their contracts swiftly.

“We're doing that using Knowledge Graph technology which models the legal and domain expertise so that contracts can be safely created without getting legal involved at every single step, and also makes the data in a contract searchable post digital signature. Often contracts get signed, and even if it’s done electronically, contracts can get  lost or the terms in the contracts are not easy to search.

“We address both problems for when you're not a lawyer or when you don't have an extensive legal team, and that tracking of the data which is really important for the business.”

One of the typical behaviours Charles says Legislate has observed is that startups often neglect legal very early on in their journey, and then once they’ve reached a certain size, will try and fix all their legal problems at once - which is obviously a lot more expensive than getting onboarded properly from day one. 

He says: “We tend to find if our clients are smaller startups, they appreciate legal risk and therefore will start using us early on in their journey especially for employment contracts, company policies, consultancy agreements, and they'll benefit from having everything in one place, which also helps save a tremendous amount of time when they go through due diligence during funding rounds.

“When we work with larger scaleups, oftentimes they will have hired law firms to fix their legal problems and get them back on track. When I say legal problems, it can be as simple as a template borrowed from another company which isn’t adequate for their business.

“So once they've gone through that process, they'll then come to Legislate to help them continue to hire, and generate employment contracts efficiently. Or it might be a part of their sales cycle where they need to generate a huge volume of NDAs and we'll use our system to create these NDAs.

“We're not necessarily saying founders shouldn't use law firms, at the end of the day, it does come down to budget. But it's also a question of understanding what your legal risk is; understanding what your legal budget is; then matching the budget with a solution.

“Spending £1,000 for an employment contract template isn't a good use of funds, but spending £1000 for some legal advice could help you understand legal risk.”

Scaling per stage

Charles admits that it’s not only the stage that’s important, but also the area of the business that may influence the parameters or the values of parameters in a contract. 

“For example, in the medical domain, NDAs tend to have confidentiality terms, which are much longer than in software. But I think what's common to all startups is Intellectual Property (IP) protection.

“It's really important to make sure the contracts that startups use, whether it's employment, consultancy, or even NDAs, provide sufficient protection.

“I think sometimes, especially when you are entering into agreements with clients, especially bigger companies, if you make an agreement too quickly, you might be giving away valuable IP and if you do that, then ultimately you're sinking your business.

“You might get the deal, you might get the customer, but you might not get the investors to support your growth, so I think it is really important to have the basics in place, and then that's where Legislate can help.”

However, Charles advises that if scaleups do more contracts with clients, to try to use their own legal paper and contracts as much as possible. 

He says: “It might create friction, but at least it will provide the extra protection or a good baseline, but also help you understand the true intentions of the client.

“If necessary, seek legal advice if you have questions, but I think protecting IP is really essential.”

Ensuring you protect your Intellectual Property (IP)  is important, but Charles notes that confidentially is something scaleups should also really be thinking about.

He says: “Whilst a lot of investors won't sign NDAs, your clients and partners should and it's really important to ensure that you can at least control where your proprietary information is being shared, how it should, and whether it shouldn't be shared.

“Because at the end of the day, startups as when they can execute properly and leaking information can get backed up.” 

Charles also advises scaleups to be very organised with contracts and documents. 

“If ever you need to raise funds, or go for an audit for a client, you need to be able to spin up data rooms and answer questions about your contracts, like ‘How many employees have more than 25 days holiday? How many employees are on a 30-day notice period?’

“You need to be able to answer those questions very quickly. If you can't answer that, if it takes one week to answer each question, it can become a real disadvantage for your business.

“So, trying to be organised from day one is important. That might mean having a well-organised GoogleDrive; having well organised folders; using the system like Legislate. But ultimately, don't rely on your inbox as a way of storing your contracts.”

Challenges scaleups should prepare for

Charles admits that hiring is always a challenge for businesses, and is thankful to have been able to use Legislate as part of their hiring process - meaning contract creations haven’t been a bottleneck. 

Another challenge businesses may come up against include getting clients to sign your paper. 

“The best approach is, before starting any conversation around the contracts, really understand what the terms are, but not just the terms of the high level, but what that even means in the context of the contract and the clauses, because if there are misunderstandings, then that can create delays,” he says.

And finally, when it comes to creating employment contracts, restrictions can be another challenge that companies usually don’t anticipate. Whether that be from main competitors trying to poach a prospective new recruit, or prospective employees changing their mind and wanting an added edge in their contract too.

Charles says: “I think with some of these challenges, a lot of it is just trial and error, but as long as you're starting with fairly robust contracts, the implications or the problems will still be manageable.”

Lessons learned through the scaleup journey

Charles wouldn’t consider himself a lawyer, knowing even 1% of what Legislate’s legal team knows, but admits the legal team teaches him new things every day - offering a great opportunity for him to learn about contracts.

“At the end of the day, a lot of it comes down to managing legal risk and understanding the risk.

“Very often founders don't appreciate the risk of a certain clause, or what the implication might be, so we standardise the clauses and terms so that it's always market standard and fair.

“I think more can be done or should be done to educate founders about the implications of liability clauses or implication of warranties.

“If you don't truly understand the risk, then you might be creating a whole lot of liability for your business. When something goes wrong, it can have quite a big impact.

“Contracts are only really revisited when things go wrong, and that's why it's important to have that understanding of risk.

“In some businesses it might be acceptable to take risks, but in others not; that's where the industry and the stage of the business might also help, but if you at least are able to appreciate the risks, then you can make appropriate decisions.”

Hopes for the future

One of the next steps for Legislate is that the company is expanding its contract database.

Charles says: “Our goal is for clients to be able to create any type of contract on our platform so that they don't need to rely on ad hoc solutions when Legislate can't fill the gap.”

But Legislate also plans to expand internationally, as at present, Legislate’s coverage is solely in England and Wales, with plans to expand to the rest of the UK and into the US - after receiving interest from those markets. 

He says: “I think to do that well, on the one hand we need to grow our team, but we'll also need to build integrations with more platforms because again, going back to wanting to help our clients create all their contracts in one place, it also means ensuring the contracts and data in those contracts can easily connect to all the tools they use.”