Commercial Awareness Update – W/C 17th March 2025

THE ROLE OF LAWYERS IN UK STARTUPS

In UK startups, legal counsel is vital in managing companies through complex legal terrains to ensure compliance, protect intellectual assets, and standardise growth.

Engaging the appropriate legal expertise at various stages of development is crucial for mitigating risks and capitalising on opportunities.

Roles and responsibilities

A startup may adopt several legal structures, such as sole proprietorships, limited liability partnerships, and limited companies. Understanding that each has different liability, tax, and legal implications and considerations is critical, hence the need for counsel with relevant expertise.

Corporate lawyers

They are considered the most fundamental, and some of their responsibilities include:

• Rendering advice on company formation, structuring, and restructuring, in that they provide clarity on what may be the most suitable legal structure in tandem with a client’s ambitions and requirements.
• Ensuring that legal documentary requisites are complied with, for instance, company registration, obtaining the correct licences and conforming to regulations, such as employment, IP and GDPR laws and other sector-specific standards.
• Involvement in contract drafting and negotiations with partners, suppliers and their clients’ clients in warranting fairness and safeguarding interests whilst building long-lasting business relationships.

IP lawyers

Intellectual property is a business’s most valuable asset. Therefore, seeking the appropriate type of IP protection is critical to prevent trademark and copyright infringements. This, in turn, facilitates fair market competition, encourages innovation, and fosters consumer and investor confidence in a product.

IP lawyers are typically specialised in:

• The assessment of what IP, such as patents, trademarks and copyrights, could be protected by IP laws and shepherding their clients through any application process or requirements.
• Imparting trade secrets to help their clients gain a foothold in their respective industries.
• Monitoring respective markets in alleviating infringements and taking any action necessary to enforce their clients’ legal rights.
• Advising their clients on monetising their IP whilst ensuring their scope and use are controlled.

Employment lawyers

The complexity of managing the stringent employment law requirements would primarily depend on the business structure and the number of employees. Employment lawyers are, therefore, critical in traversing the convolution of employment law.

For instance, proactive employment lawyers in the startup scenario would:

• Guide their client in observing and adhering to employment law covering elements such as working hours, payment of wages, complaints procedures, parental leave, discrimination and redundancy processes.
• Engage with their clients in drafting suitable employment contracts for their employees, which clearly outline employment terms.
• Collaborate with their clients in handling workplace disputes and determining appropriate actions to reduce lawsuits.
• Partner with their clients to develop essential and legally effective policies on health and safety, discrimination and whistleblowing issues.

GDPR lawyers

The UK’s GDPR laws are comprehensive, and it is imperative that all businesses fully understand them and their far-reaching consequences. Startups must employ a data and privacy lawyer from the onset.

A GDPR lawyer’s role within such a scenario would entail:

• Advising GDPR compliance, including data collection and processing, customer relations, marketing, and product development.
• Drafting privacy policies and developing protocols on cross-border data transfers, data usage, and breaches, automating breach responses, and applying remedial principles to help guarantee the business remains profitable while nurturing trust for the company and its innovative efforts.
• Consistently monitor GDPR laws to ensure their clients stay abreast and implement any necessary changes to avoid heavy penalties.

Financial and securities lawyers

The poor management of economics and finances poses one of the most significant probabilities of a business failing. It is an absolute necessity that financial and securities lawyers are involved at any given point, with some of their skills to include:

• Providing assessments and guidance on legal requirements about fundraising, including venture capital investments and public offerings, depending on the business structure.
• The preparation of due diligence processes to ensure the business is financially sound for internal and external audits by the relevant bodies and for transactions to include M&As.
• Securing compliance with relevant laws to safeguard the business, investors, and employees from the possibility of heavy penalties and collapse.
• Drafting agreements, to include shareholding and agreements between business partners.
• Helping to keep resources, assets and position in the relevant market safe.

In summation, a corporate lawyer effectively mitigates the probability of potential disputes and pitfalls among all parties and regulators, while IP lawyers safeguard a startup’s innovations and enhance the appeal of an IP to investors by protecting core assets and demonstrating exclusivity. They help their clients concentrate on managing other aspects of their business.

Furthermore, employment lawyers provide ongoing and current legal guidance in employment matters, helping maintain a positive workplace culture and shielding the company from potential legal disputes. Data and privacy lawyers guide their clients through the complexities of the UK’s GDPR.

Finally, finance and securities lawyers advise clients on financial transactions and compliance with appropriate regulations.

Other counsel, such as compliance and regulatory lawyers and ADR experts, may likely become involved with a startup at various points in the business. However, it is essential to note that some lawyers are multi-skilled. Thus, a client could reduce their initial overheads and complexities by employing one or more multi-skilled lawyers.

That said, while it is demonstrable that a startup procures expert help to give its business a reasonable chance of success, the choice remains with the owner to do so.

• By Aqua Koroma

BASEL III

On 17 January 2025, the BoE announced that implementing the ‘Basel 3.1 Standards’ would face a year of delay and be implemented instead on January 1^st, 2027.

Basel 3.1, the concluding variation of Basel III, recalibrates the measures of Basel III to differentiate the framework’s execution in the UK (except the European Union) and the rest of the world. It is expected to underscore the UK’s commitment to maintaining a robust and resilient banking sector.

But what is Basel III?

Following the 2007-2008 financial crisis, the Basel Committee on Banking Supervision (BCBS) introduced Basel III in 2009. The third of the Basel Accords builds upon the established guidelines of Basel II, marking a crucial evolution in banking regulations.

Its framework is designed to confront the inconsistencies and sensitivities unveiled by the cataclysmic event by programming minimum standards into global banking sectors. These standards amplify their resilience, with the measures implemented at predetermined intervals.

The BCBS tracks the promptness and correctness of Basel III through its Regulatory Consistency Assessment Programme. Basel III is effected in the UK through the Financial Services Bill (2021), with the UK’s Prudential Regulation Authority overseeing application and compliance.

Some intricacies of Basel 3.1

Some of the framework’s provisions include:

• The Leverage Ratio (LR) which measures a company’s debt to equity and indicates the proportion of its assets financed by debt rather than equity. Deleveraging is an extreme but expedient process undertaken by a company to pay off its debts and other obligations.

Before the financial crisis, companies had a ‘build-up of excessive on and off leverage in the banking system…whilst maintaining seemingly strong risk-based capital ratios’. At the height of the crisis, the banks scrambled to deleverage their balance sheets, reducing available financial facilities in the global banking network. The introduction of the LR is designed to prevent such long periods of deleveraging, thereby ensuring a banking system’s stability.

• The introduction of two liquidity ratios:

1. The Liquidity Coverage Ratio: The LCR demands that banks hold an adequate amount of liquid assets capable of withstanding what is referred to as ‘30-day stressed’ funding. 30-day stressed funding demands a bank to have High-Quality Liquid Assets (HQLAs), such as debt securities or government bonds, which can be converted at short notice to cash without detrimental loss to value, thereby increasing the capability of surviving at least a 30-day worst-possible-case scenario.
2. The Net Stable Funding Ratio: The NSFR demands that banks be able to fund long-term assets for a minimum of a year (stress) period. It is a ratio of a bank’s available stable funding (ASF) and its required stable funding (RSF).

Basel 3.1 requires the NSFR to be at least 100%, and the ASF must be equal to the RSF. This means banks have little or no reliance on short-term funding, reducing the pressure on national and global banking systems during a crisis.

• Capital buffers: Banks must now sustain additional reserves or buffers exceeding the minimum requirements set by respective regulators. Some of these buffers, such as:

1. The Countercyclical Capital Buffer (CCyB) supports the macroprudential goal of protecting the banking system ‘from periods of excess aggregate credit growth associated with the build-up of system-wide risk’. An essential feature of this buffer is its variability over time in tackling financial cycle risks.
2. The Capital Conservation Buffer (CCB) accounts for 2.5% of risk-weighted assets (RWAs). RWAs are the results of calculated risk in a bank’s assets. The CCB warrants that banks manage a minimum level of capital throughout any banking period, whether untroubled or fraught with the danger of collapse. If such levels diminish, persuasive measures compelling banks to retain capital are triggered.

Impact on society

Nonetheless, Basel III’s impact has come under negative scrutiny.

Holding more capital than assets and higher liquidity requirements reduces funds availability, which reduces lending and increases the cost of available lending, thereby shrinking economic growth.

A business, especially those unlisted or comparatively smaller or any other legal entity, will be grossly impacted. For instance, first-time mortgagees would find obtaining the funds necessary to step foot on any property ladder challenging. Also, those entities would face difficulties sourcing much-needed funds for everyday survivability and thrivability.

Furthermore, market competition would be negatively impacted, significantly contributing to increased bankruptcies and administrative action.

Decreased lending in this context means a lesser demand for housing, a decline in house prices, reduced consumer spending associated with the housing industry, and the trickle-down effect on the construction industry, including redundancies, all of which not only contribute to an economic slowdown but also increases the risk of sector collapse.

Contrarily, the framework brings foremost positives for all the arguments against it.

Its stringent measures address flaws such as liquidity shortfalls and excessive leveraging while underlining the importance of higher capital requirements in the global banking system.

In turn, all such initiatives encourage responsible lending and mitigate the risk of banking failures, strengthening public confidence in the banking system and effectively contributing to the overall stability and resilience of the UK’s banking sector.

These measures are, therefore, indispensable should the global financial network face another deepened crisis akin to 2007-2008.

Impact on the legal sector

National and international banking clients must know all legislation imposed by the Basel 3.1 framework. The framework’s effects spread into the legal sector, which is further exposed due to its interconnectedness with the finance industry.

Such exposure will affect the sector in several ways.

For one, corrective proceedings may increase, whether for actions brought against international active institutions, dissenting private clients, or in instances where an institution wants to ensure it adheres to the framework’s requirements and seeks clarity.

Also, implementing Basel 3.1 could expedite a decrease in M&As due to uncertainty surrounding the levels and types of capital required to be held by financial institutions, companies, and the like. However, after this period of uncertainty, there may be an upsurge in M&A deals and transactions, countering previous effects.

Relevant to small businesses, increased bankruptcies and administrative actions may be an unfortunate consequence as they struggle to compete with larger corporations that are better placed financially to handle the demands of Basel 3.1.

Nevertheless, in any way, Basel 3.1 looks set to revolutionise banking, and the latter’s components will fare better if they remain well-informed.

• By Aqua Koroma