Legal Considerations

The last thing you want as a starting entrepreneur is to have some serious legal issues on your back; opening a business is hard enough without it. Yet, many small business owners tend to skip this step thinking it’s just a waste of precious time and money. Well, it’s not. Running into legal trouble and potential lawsuits — is!

Hence, take a good look at these five key legal considerations laid out in front of you and consider all the ways you can protect your business from a potential court summons.

1. Founders’ Agreement 

In the world of business, good fences make good neighbours; legal fences that is. Don’t assume your initial partnership with your co-founder will last forever just because the two of you are buddies; people change. If you don’t have anything on paper and simply rely on their good word, you can expect a ton of legal issues coming your way. These include legal disputes on who owns what, trademark rights, shares, and so on. 

One way to prevent these disputes from happening is by securing yourself with some carefully written clauses in your founders’ agreement contract. That way any disagreements that do occur — either due to a change in vision or the roles of the co-founders — will have pre-determined outcomes. Meaning, your co-founders won’t be able to bully their way into getting a much larger piece of the pie.

2. Intellectual Property

If you’re a startup, it’s more than likely that your biggest asset is, in fact, your intellectual property (IP). This can be anything from potential trade secrets to copyrights and patents. 

Remember how in the movie, Trading Places, the two main protagonists get rich by getting their hands on a secret government report concerning frozen concentrated orange juice (no less)? Well, imagine if someone stole your trade secret and made a huge profit out of it behind your back; you wouldn’t feel good now, would you? 

That’s why you need to work both actively and proactively to defend your IP rights. Before doing any business with outsiders, always make them sign a non-disclosure agreement (NDA) to protect your assets. The same goes for your employees — get them to sign confidentiality agreements when they start working. After that, you need to conduct regular IP audits and send cease-and-desist letters to anyone directly violating your trademark rights. Only when your assets sit safely in your hands can you sleep soundly at night. 

3. Business Structure

Before you start taking steps to register a company, make sure to decide on the right business structure. Each structure has a different level of complexity, different tax and legal obligations, as well as different limits of liability.

Also, keep in mind that these structures differ from country to country. Business entities are defined differently by the specific legal systems of various countries and they are obligated to follow the specific set of rules. Some of these entities include limited liability companies, corporations, partnerships, sole traders and others.

For example, in Australia, there are four main types of business structures: sole trader, partnership, company, and trust, while in the USA, the most common forms of business are the sole proprietorship, partnership, corporation, S corporation, and Limited Liability Company (LLC).

4. Licences and Permits

If possible, consider getting relevant licences and permits for your business. In some cases, these can even be mandatory, such as sales tax licenses, health licenses, food and beverages licences, and so on. Be sure to check which of these licenses you may need to have in order to operate legally; otherwise, you’re in for some nasty legal disputes with the government. Contact your local municipality offices to get to the bottom of this conundrum and file a permit as soon as possible. 

In addition, there will be cases when these are not mandatory; but get them anyway. Getting a licence or a relevant industry certification is not only good for decorating your walls — it’s good for business. You will appear more trustworthy and prestigious to your clients. In the world of business, looks are important.

5. Documentation and Record-Keeping

You want to have clean records and good documentation when you start a business. This is not only for safety reasons to provide solid evidence and proof of all your company’s financials and doings, but also to attract prospective clients. Namely, investors and venture capitalists won’t take a second look at your business if you don’t have the proper paperwork sorted and ready. 

As a result, consider employing an accountant or a bookkeeper to manage your finances. Hire someone you can trust that knows how to put together an exceptionally written contract for your clients and employees. Do this sooner rather than later and spare yourself the pain of negotiating (and re-negotiating) with investors and clients willing to do business with you.

By now, you should be prepared to face any potential legal issues that may come your way. Stay vigilant and be mindful of the things you do and say. That way you lower the risk of someone actually suing you in the end.



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