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9 top tips for beauty start ups

Posted on 5 December 2023

Lawyers from across our firm have combined their expertise to provide these legal tips for start-up and early stage businesses in the beauty sector. While there is no one-size-fits-all approach, these tips should help young beauty brands circumvent some of the common pitfalls and ensure that their businesses are not only legally and regulatorily compliant, but well positioned for future growth and success.

Register your company and ensure co-founder agreements in place

Formalise your business by incorporating a limited company. A limited company has a distinct legal personality and its capital is made up of shares. The shareholders are liable to pay for their shares but are not liable for anything over and above that amount, including the company's debts or losses, or the costs of any liquidation. A founder can be the sole director and shareholder of the company.

Incorporating a company will require certain legal documents to be agreed, most importantly the articles of association. There may also be a shareholders' agreement. These documents govern how the company should be run, including the powers of the director(s) to manage the day-to-day affairs of the business, and the relationship between the shareholders and the company.

The articles of association and the shareholders' agreement provide a good opportunity to formalise any agreement between co-founders – for example, in relation to their rights, commitments and remuneration. In formalising their agreement, the co-founders may minimise scope for dispute down the line. The articles of association will be publicly available for inspection at Companies House so any particularly sensitive matters to be agreed between co-founders may be better documented in the shareholders' agreement, which is a separate, private contract between the shareholders (and sometimes the company itself).

Going forwards, all assets and liabilities should be registered in the name of the company, and any pre-existing assets should be assigned into the company at this stage. This includes any IP created by the founder or co-founders before the company had been incorporated.

IP - Clear and protect your brand

Your business will need a brand name. The beauty sector is heavily saturated and so your name should be memorable in order to stand out. This also improves the prospects of it being registrable as trade mark.

Whilst you might already have a name in mind, it is a good idea to have a shortlist of options before seeking IP advice or taking any steps to using the brand, in case your chosen name turns out to be unavailable.

The next stage is to undertake 'clearance' searches – these are searches of the trade mark register, to establish the availability of a name (and the potential risk of infringement of existing earlier rights). Clearance searches can be limited to the UK or done internationally, and may also include additional searches for unregistered rights (such as website domains, app names and company names). Whilst clearance searches will be an additional up-front cost, it is better to identify any obstacles at this stage before you have invested significantly in the brand. If your brand name turns out to infringe an earlier trade mark, lack of knowledge will not be a defence.

Once a brand name has been decided, register it as a trade mark in order to protect your brand and prevent third parties from using a similar name for relevant goods and services. You may wish to consider registering not just the name itself, but also any logo that you intend to use. Whilst you may initially file in the UK, you should also consider any other territories you might expand into in the short/medium term. You will also need to consider the product range of goods and/or services to be covered by the trade mark.

As well as your brand name and logo, there may be other IP to register, for example your products and/or packaging. Registrable IP includes trade marks, design rights and patents.

Negotiate bespoke commercial agreements

It is vital to ensure that you have robust agreements in place with any third parties, particularly those involved in the creation, manufacture and distribution of your products.

If you are developing and manufacturing your products externally (e.g. with a cosmetic chemist), it is essential to ensure that all IP rights in the products created vest in your company. Any manufacturing agreement should be bespoke to your products and should stipulate the product formulation and manufacturing process in detail. You should ensure that you have the right to inspect manufacturing procedures and that there is a protocol for dealing with quality concerns. You should ensure your manufacturer is compliant with modern slavery and child labour laws. 

More generally, robust agreements are recommended with all suppliers and distributors, including retailers and/or wholesalers (depending on your distribution model). Avoid agreeing to standard T&Cs – even when a high profile retailer has agreed to sell your products, their standard T&Cs will protect their interests not yours, and there may be room for negotiation.

If you engage with other third parties, such as a website design agency or a branding agency, it is very important to ensure that all IP rights are assigned to your company. Otherwise, by default, the rights will remain with the author/creator of the IP (i.e., the agency).

Finally, ensure that non-disclosure agreements (NDAs) are in place with any other third parties who have access to your confidential business information (which is likely to include ingredients, product formulations, pricing, branding, sensitive supply chain and customer information). From a practical perspective, it is also important to check that your business has the right confidentiality processes in place to limit, control and track what business secrets have been shared with other parties (even where an NDA has been put in place). 

Ensure employment contracts are in place

It is important to ensure that you have contracts in place with your founders, directors, employees and any consultants engaged by the company. These agreements will set out the terms of the relationship, including the individual's duties and responsibilities, their obligations both during and post engagement and the mechanisms by which the relationship can be terminated. They will also offer protection for the business in respect of various matters (such as confidentiality, IP, and restrictive covenants preventing employees from joining competitors for a period of time after termination, for example).

It is also a legal requirement to provide a written statement of certain terms of employment (such as salary and holiday, for example), which are typically included in the contract itself.

You will also need to consider implementing policies, some of which are mandatory (such as disciplinary and grievance procedures and a GDPR privacy notice, as well as a health and safety policy if five or more employees are engaged) and some of which may be recommended (such as policies relating to absences and family friendly leave, equal opportunities and hybrid/remote working, for example).

Product safety: ensure you comply with consumer safety legislation

All beauty products must comply with cosmetic product safety legislation (as well as other relevant health and safety regulations), under which it is an offence to supply a cosmetics product which may cause damage to human health or which contains specific restricted ingredients.

The legislation also stipulates a number of product safety requirements and obligations, including the following:

  • Prior to placing any product on the UK market, it is necessary to prepare a safety assessment (by a competent person), produce a product safety report and submit a product notice to the Office for Product Safety and Standards (OPSS).
  • You will also need to appoint a 'responsible person' to undertake the business' regulatory compliance obligations and who must maintain a product information file for each product;
  • Every individual ingredient used must be compliant.
  • All products must be manufactured in accordance with the Good Manufacturing Practices (GMP).
  • The product labels must be compliant (see below).
  • The product must comply with the ban on animal testing for cosmetic products.
  • Companies operating in more than one area of the UK should contact their local Trading Standards Authority and consider entering into a Primary Authority Partnership, which can provide assured advice.

Product labelling: ensure your product labels are compliant

Your products must comply with strict requirements for labelling on cosmetics (including the container and any packaging), which are enforced by local Trading Standards Authorities.

Certain information is required on product labels, including the name and address of the 'responsible person', the weight/volume of the content, the ingredient list (noting that there are rules on how certain ingredients are described); certain precautions, warnings and/or contra-indictments, the batch number/code and the country where the product was manufactured. 

Consider adverting rules in the promotion of your products

You will need to ensure that any adverts and promotional materials are compliant with advertising and marketing laws and regulation, including the advertising codes enforced by the Advertising Standards Authority (ASA) and Committee of Advertising Practice (CAP) rules, namely the CAP and BCAP codes. As a general principle, all product claims must be truthful, not misleading, and substantiated by evidence. However, there are a number of rules specific to the beauty industry For example:

  • When describing a product as "anti-ageing" or "anti-wrinkle", be clear if the effects are temporary – the ASA suggests that claiming a product "can reduce the appearance of fine lines and wrinkles" may be more acceptable. Sensory claims such as "skin feels smoother" are generally considered acceptable.
  • Do not make any medicinal claims unless the product has been licensed as such by the Medicines and Healthcare products Regulatory Agency (MHRA). A medicinal claim implies that a product can treat or prevent a disease, and importantly this could apply to claims to treat skin conditions such as acne.
  • Do not advertise any prescription-only medicines and creams to the public, such as Botox(see our article on the recent consultation around the licensing of such procedures here) . Prescription-only products cannot be advertised to the public, but brands may promote a consultation rather than the product itself.
  • Take care when using re-touched images that these do not falsely imply an exaggerated effect. For example, claiming "skin appears smoother" with before and after pictures where the "after" photo is heavily re-touched could mislead the consumer.
  • Ensure that all social media and influencer adverts are clearly identifiable as adverts, for example that influencer posts on social media comply with the #AD requirements (see our coverage on these requirements here). If you are engaging influencers to promote your brand and products, there should be a written agreement in place to govern the relationship.

Implement website terms and conditions

If you intend to retail direct-to-consumer via your website, you will need to ensure that you have clear website terms and conditions in place. These govern the terms upon which consumers purchase orders from your website, including payment, delivery, cancellation, product liability etc. These essentially form the contact with the purchasing customer. Consumers have additional rights when purchasing online (as opposed to instore such as enhanced cancellation and return rights), and your terms will need to comply with consumer protection legislation. 

It is important that your website T&Cs are bespoke to your brand, products and business – whilst "off the shelf" terms may be available at lower cost, these could expose you to risk and liability if they are not properly tailored to your business.

Make sure you have a publicly available privacy and cookies policies

If you intend to sell online directly to consumers, you are also required to take steps to comply with UK GDPR (General Data Protection Regulation) and the Data Protection Act 2018 (as well as potentially the EU General Data Protection Regulation, e.g., if you have customers in the EU). This will entail having a privacy notice and cookies policy.

A privacy notice sets out how and why you will be collecting and processing personal data, how long you will keep it for and what happens when it is no longer required.

Your cookies policy will provide information on the individual cookies used on your website and the purposes for which they are used. The only cookies (or similar technology) that can be placed on website visitors' devices without consent are those that are "strictly necessary" for the site to operate. To place any others the website must seek the visitors' consent. The Information Commissioner's Office (ICO) has issued guidance on cookies.

Data protection transparency rules require that these are available to anyone who deals with your business. If your website is not compliant then you risk a fine or legal action.

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