Though everyone will tell you that a list of tasks to launch a business would take up several pads of writing paper, the legal considerations (other than creating a business name) somehow tend to take a back seat. Unfortunately, when you neglect the legal underpinnings of a startup it can cause a boomerang effect, with your best laid plans coming back to haunt you.
Aside from the obvious necessity of choosing a proper business structure, there are many business mistakes and legal errors commonly made by new founders. Surprisingly, the legal advice(for preventing business mistakes) business owners may feel isn’t necessary could, in fact, make the difference between ultimate failure and success. We’ve chosen four areas which are frequently minimised in importance or entirely disregarded.
Overpromising and Underfulfilling
Primarily we’re addressing customer obligations, but don’t forget this may also come into play with any investors involved in your business. Overstated goals of productivity may give you a competitive edge; however, when you cannot deliver on time (or within the scope of professional standards) it’s going to negate your credibility.
Over time, customers may end up losing money because of your missed deadlines or less than desirable results. If you do not have a services agreement in place, disputes will be left up to common contract law; and you may very well find yourself mired in a fraud claim or lawsuit.
Contracts business law can be interpreted differently in various contexts, therefore it is highly recommended that new owners have a solicitor draw up a proper services agreement for each unique business.
Several items to include would be:
- Names of parties
- Specific services offered
- Charges and any special fees
- Payment method and schedule
- Termination clause (for both parties)
- Confidentiality and IP protection clauses
Lack of Formal Ownership Agreements
When you decide to share the ownership of a company or partnership, a formal agreement should be at the top of your task list. Though not every business structure requires an operating or partnership agreement, don’t let that stop you.
Without any one of the following parameters put into writing, your business (and your life) could easily turn upside down:
- Owners are clearly identified
- Percentage of ownership is documented
- Vesting interest timeline is defined
- Owner responsibilities and roles are detailed
- Policy for departure or death of an owner is outlined
- Capital and asset contributions are clearly apportioned
- Confidentiality and invention assignments are in place
Lack of Invention Assignment in Hire Contracts
Employees or independent contractors hired by your company are going to create works for you as part of their duties. Don’t make your worker’s job descriptions too broad; instead, make sure you include any creative elements or projects they might be tasked with.
As the employer, in most cases you are providing facilities and tools which are paid by your business. Though your home-based workers usually handle their own office expenses (which offset their personal taxes), if they are contracted to create intellectual property for you, an invention assignment should be in place.
Without proper documents, any products or intellectual property created for your company, such as a new online application or website, could end up in a dispute over ownership in the future. The impact of such a potential lawsuit could be devastating; especially if that creative is a part of your brand identity or daily operations.
One of the primary concerns for a startup, or any business for that matter, should be assessing its potential risks. From liabilities brought on by claims and lawsuits, to unauthorized access to sensitive data – proper covers can protect you from literally being forced out of business.
Business owners’ policies (BOP) will offer a combination of typical coverage. However, it is important to understand the legal ramifications of not fully guarding your company from known risks, whether or not a specific type of insurance is legally required.
Primary Types of Business Insurance:
- General Liability
- Professional Indemnity
- Employer’s Liability (EL)
- Motor Insurance
- Directors and Officers Liability (D&O)
- Tradesmen’s Insurance
- Key Man Insurance
- Property Insurance
- Cyber and Data Breach Insurance