5 Business Legal Issues You Need to Be Prepared For

Introduction

When starting a business, you have two choices – face legal issues after pouring your heart and soul into your startup or avoid future lawsuits by being adequately and legally prepared.

One of the extraordinary causes of business failure is lawsuits and inability to recover from it. By the time new entrepreneurs settle high legal fees, settlement or judgments, they are left with little or no resources to run the business.

It also indirectly affects company resources through reputational damage. When customers don’t trust company products or services, sales take a deep dive thus hurting the company’s productivity.

Imagine handling all of these problems with the overwhelming responsibilities of starting a business. This is why proactive legal planning is of utmost importance, and there are five (5) core legal areas you should focus on to protect your new business.

This article will list and explain those areas so that when you are done reading, you will understand the potential risks and how to mitigate them.

5 Business Legal Issues To Be Prepared for as a New Entrepreneur

1. Laying The Foundation – Business Structure and Formation.

The business structure you choose for your business determines your corporate taxes, business operations and general legal liability which is why you must choose the best structure for your business.

The main types of business structures include –

Sole proprietorship – Here, the business belongs to, and is run by a single person who bears all the business debts and obligations. There is legally no difference between the owner and the business.
Partnership – could be limited, limited liability or general. Owned by two or more individuals who could be equally liable, partially liable or completely limitedly liable.
Limited Liability Company (LLC) – Has the characteristics of both partnerships and corporations.
Corporation (C Corp, B Corp) – A legal entity different from its shareholders.

When you have selected the right structure for your business, then you must register it with local authorities depending on your location. After registration, apply for the proper licences and permits, open a local bank, get a tax identification number and compy with local tax filing requirements.

Running a business means that you will be offering or receiving contractual and employment offers which means that you need to familiarize yourself with the local contract and employment laws.

2. Protecting Business Relationships – Contracts and Agreements.

Every new business will enter into any of the following contract/agreement – client contracts, partnership agreements, employment contracts or vendor agreements – at one point in their business journey.

Hence it is important to draft very clear contracts to prevent any form of misunderstandings or disagreements down the line. It clearly highlights what is expected from each party to the contract so that where they fail in their obligations, they will be held liable.

A good contract protects your new business from financial or reputational harm, and protects the interests of all parties involved. It is important to have an experienced attorney who will draft this contract and represent you during the signing.

3. Safeguarding Your Innovation – Intellectual Property

With the alarming rate at which people steal other people’s ideas creative works without giving them due credit, it is important that you put up legal ways to protect your inventions, brand identity and competitive advantage.

Depending on what you wish to protect you can apply a copyright, trademark, trade secret and patent. If you wrote a book, made music or built a software, then you will need to apply copyright law to protect your original works.

If you produce goods or services, then you will need to trademark your logo, brand name or other identifiers. If you are an inventor, then you will need patent law to exclude others from using, selling or making the invention.

If you produce things such as drugs, makeup or similar products then your trade secret will give your business a competitive advantage. Trade secret is a confidential information such as formulas, designs or processes that makes your products unique.

4. Building a Team Legally – Employment Law and HR Compliance

When starting your business, there are various employment law issues that may arise such as termination pay, labour rights (e.g. wages, breaks, hours, overtime, and the right to organize a union), occupational safety, harassment, discrimination and retaliation.

Legal protection differs based on whether an individual is a full-time employee or an independent contractor. An employee works directly under an entrepreneur and are entitled to regular salaries and other benefits.

On the other hand, an independent contractor have more autonomy and although they equally get paid, they handle their own taxes, insurance and business expenses.

You will also need proper HR policies to ensure that the well-being of your employees are handled in a fair, consistent and transparent manner.

Your HR officer should be familiar with local employment laws and regulations to avoid business legal issues/penalties that could affect your business.

If possible, create handbooks to guide employee behaviour, have a clear and simple onboarding process and a fair termination policy.

5. Managing Risks – Liability and Insurance

New entrepreneurs must also figure out how to handle financial obligations (to other entities) that come with establishing a business.

Such obligations include commitments, accounts payable, debts, wages and taxes payable, and obligations that may require some economic sacrifices.

For instance, things like customer injuries, negligence and product defects may attract lawsuits and could put the business at risk. Having business insurance can protect your business when lawsuits like this are filed against your business.

Examples of business insurance include workers’ compensation, professional liability insurance business owners policy and general liability insurance. The insurance you take out depends on the type of business you run and the risk that may arise in the during business operation.

If your business involves hiring talent from abroad, international immigration lawyers can help you navigate visa requirements and compliance issues.

Conclusion

Before you start your company, you should discuss these 5 business legal issues with an attorney, and discuss proper ways to handle them based on the location you wish to establish your business.