10 Legal Tips on how to safeguard your business interests this New Year.
Updated: Jan 8
It is a fact that most of the entrepreneurs have a basic understanding of the law but most of them fail to think about the legal implications of starting and conducting a business. Many companies who are trying to save money on hiring attorneys are turning to online legal service companies who provide low cost basic contracts or solutions, which cause more harm than good.
As an entrepreneur, it is a huge responsibility to make your business successful. Interaction with third parties like potential employees, marketing agencies, investors, contractors, competitors, etc. during the course of conduct of your business is inevitable. The fear of client soliciting, idea imitation, employee raiding, cheating, lingers around like a never ending roller coaster of pain, agony and frustration for any business owner.
Here are 10 tips to avoid the stress and the legal measures that you could possibly take to mitigate the risks involved in doing business this New Year.
1. STRUCTURE YOUR BUSINESS
Determine the proper entity structure for your business. Your choice of entity influences major future decisions that you might take like how you borrow money, how you will be taxed, how you will raise investments and how you structure the sale of your business. Set up your business from the start in a separate legal entity like a private limited company, so you protect your personal assets. Otherwise, you are personally responsible for the debts and obligations your business incurs.
2. MAINTAIN PROPER RECORDS
Ensure that the organizational documents are systematically kept in place. Your business is required to create and maintain proper records including such items as adopting resolutions documenting business decisions, paying payroll and taxes, maintaining the company’s bookkeeping, complying with labour and wage requirements, and acquiring and maintaining licenses or permits. Be sure to keep your business and personal finances separate.
Additionally, it is also advised to have an agreement that covers items such as management decision making, voting protocols, profit-sharing, restrictions on adding new owners and how the owners will solve disagreements. These items are typically included in an operating agreement, company agreement or shareholder agreement or Co-founders’ agreement. Having a well-negotiated agreement can limit disputes and promote harmony among the owners/founder.
3. EMPLOYMENT CONTRACTS
It is critical for a business to hire good employees and have an enriching human resource pool. But that is only the first step, businesses need to be aware that they must comply with various employment/labour laws and regulations.
Protect your business trade secrets, such as pricing, client lists, data, know-how, product specifications, business plans and marketing plans with agreements so employees and contractors cannot leave and start their own businesses competing against you.
Generally, every company should limit their liability as much as possible before taking on any new employees. Typically, company should have an employee handbook in place and ensure that all new employees sign an acknowledgement form stating that they received the handbook. The handbook should address everything from the company’s sexual harassment policy to the office dress code.
4. HAVE WRITTEN CONTRACTS IN PLACE
Generally, entrepreneurs value speed over accuracy when it comes to detailing relationships with partners, vendors, customers and even employees. Verbal agreements are virtually impossible to enforce. Contracts must address each party’s obligations and explain how potential issues concerning your products or services will be resolved.
Be sure to document any modifications or extensions to your agreements in writing.
5. USE NON-DISCLOSURE AGREEMENTS.
When exploring the possibility of working with other businesses or individuals, do not share your business’s confidential information, strategies, know-how trade secrets or proprietary information without first obtaining a non-disclosure agreement from the other party. It is a sine qua non for conducting successful business. It is important to make sure the non-disclosure agreement is very detailed and lays out exactly what proprietary information will be shared. Otherwise, you might risk losing valuable work to a competitor and cause major setbacks in making your business a success.
6. AVOID LITIGATION
Litigation should be considered as a last resort. It is very expensive, time consuming and distracting! In many cases, better solution is to negotiate disputed matters.
Litigation often results from poor planning, documentation and execution. Document all transactions with third parties and especially document any disputes. In many cases, litigation is the result of signing a bad contract or not fully understanding what you have signed.
7. PROTECT YOUR BUSINESS NAME
Most of the companies start using a name only to find out that another company has already been using that exact same name. A company should usually do a trademark search on the web to ensure that a business name is available. An attorney can help you register your name as well as a logo and assist you with protecting against anyone infringing on your intellectual property.
8. PROTECT YOUR IP
Intellectual property includes any work that is the result of creativity, including inventions, discoveries, know-how, or processes. Require employees and independent contractors assign new technologies or processes they develop to your company. Properly register trademarks and license software to third parties.
Many times, the profitable verticals of a business evolve. Ownership of intellectual property in a relatively insignificant area may be critical for future success.
9. BE AWARE ABOUT YOUR RIGHTS.
It is said that knowledge is power. Nothing is as important as keeping yourself armed with adequate information on business laws. Every recognized type of business has laws regulating their operations. Some of the legal aspects of business you must be familiar with include the following:
Financial laws: Read up on the laws that concern businesses, investors and your customers.
Employment and labor law: Get familiar with employment and labor laws. This will help you understand the legal aspects of hiring practices in business.
Intellectual property:The law gives authors of creative materials protection over their works. Understanding how intellectual property law works will help you know how to protect your work.
Marketing and advertising law: Businesses get sued over misleading statements made in their marketing materials. Understanding marketing and advertising laws will help you avoid getting in trouble with the law.
10. TAKE NECESSARY LEGAL ASSISTANCE
Sometimes, you might perceive a legal problem to be small when in fact the problem can potentially impact your business in ways that only an attorney can foresee. While you can certainly read up on a particular legal issue if you have the time, it’s best to consult with an attorney who can anticipate various legal pitfalls your company might encounter.
Wrong decisions or inadequate legal documents can cost you! In an effort to save money, small business owners may try to draft documents themselves. Oftentimes, it is significantly more expensive for an attorney to go back and fix these documents than to simply have the attorney handle the matter from the outset.