Product Development April 8, 2020

The legal side of my business model is holding me up - need advice

Valentin Hinov @ValCanBuild

I realize that most of us aren't lawyers here but in case someone has faced a similar issue before I would really appreciate some advice.

I'm almost ready to launch my product, Thankbox - it's a web app intended to replace the paper card + office money collection for teams. E.g. a manager would pay to set up a Thankbox for one of their team members who is leaving and the rest of the team can add their messages, images and optionally contribute some cash towards a pot. The recipient can then claim that cash as either an Amazon voucher or donate it to charity.

I am being held up by the legalities of how the contributed money is treated.

Some people I've talked to say it should be treated as client money - something I really want to avoid, as it would mean adhering to extra regulation, having a separate bank account for it, etc... This was all intended for protecting large sums of money, not the small ones my service will be collecting.

Another way I've been told I can look at this - and one I would prefer - is to treat the contributions as effectively a gift card purchase for services redeemable on my website.

I have asked a lawyer about this - he was pretty stumped but is investigating. It's annoying to have to wait but I really don't want to launch a business with a dodgy business model.

If anyone can advise me on this or knows of a service that is similar enough I would really appreciate it.

  1. 3

    I went through a similar thing with Lloyd's of London in my last job. They argued insurance companies (MGAs) need to set up a separate bank account for each reinsurance contract with Lloyd's. My employer had 50+ contracts and had 10,000+ transactions per month, it was simply impossible to devote multiple staff to splitting up premium and moving to the applicable accounts. We argued, and Lloyd's agreed, that one separate bank account and sound accounting was enough to ensure the money was never used for operating expenses, which is the purpose of that rule.

    Long story short, maybe a valid middle ground for you is to have 1 account for your business and 1 account for client money. It is then separate and the rules don't specifically say client money must be held separate from other clients so you're technically compliant.

    I would also think/hope its OK to get the idea up and running to validate it and then figure out then little derails. But that's not his lawyers and judges think.

    1. 1

      Thanks for your answer and sharing that scary story 😄

      I'm going to take your advice and just collect gift money in a separate account and launch with that while I'm waiting on legal advice.

  2. 2

    Have you tested your idea yet? I'd focus on that first before. You can always sort the legal stuff out later if people are using your service.

    1. 1

      Yes, I agree with your point and I think that's what I'm going to proceed with doing. I'll take Lakebed's advice and just store the money in a separate bank account with the expectation that it would be sufficient legally.