Top Five Legal Considerations For New Business Owners
By Nima Rohani
Entrepreneurs can find an oasis of calm in the frenzy of a business launch by hiring a lawyer to handle the legal aspects of their new venture.
Uncertainties abound for founders in the early days of a start-up’s operations — indeed, part of the excitement of the whole process is tied to the question marks hanging over issues such as how your product will be welcomed to the market, how it will fare against the competition, and many more.
Owners can set themselves up for success by seizing control where it is possible to do so. And the many legal issues that new businesses face is one area where challenges can be anticipated and proactively addressed.
To get you started, here are my top five legal considerations for new business owners.
1. Business structure
One of the most fundamental decisions confronting founders is how they will structure their business.
Starting with the most basic option, a sole proprietorship limits ownership of the business to a single person with direct control over all decision-making and management. This means they are entitled to all profits, but on the flip side, it also exposes that person to the full extent of any liabilities associated with the business.
Incorporation is another option for owners of more complex businesses who wish to benefit from some level of protection offered by a corporate veil. This process puts some distance between the business and the people at its helm by creating a corporation — a legal entity entirely separate from any of its shareholders.
In between these two extremes, a partnership company governed by B.C.’s Partnership Act allows business owners to formalize their shared ownership and responsibility, without creating a separate legal entity.
With the help of an experienced lawyer and an accountant, you can figure out which option makes the most sense for your enterprise. The appropriate choice will depend on various factors, including the specific industry your business operates in, the level of income you expect it to generate, tax consequences and potential liability associated with the business.
2. Dispute resolution
Many people compare a business partnership to a marriage, and just like couples in the first flush of romance, few business partners want to contemplate the prospect of a break-up at some point in the future.
Whether your fledgling business struggles or is an immediate raging success, the one thing you can guarantee is that you and your business partners will have disagreements at some point over the day-to-day operations or future directions of the venture.
However, by setting out the duties, rights and obligations of each party in a partnership or shareholder agreement, including a mechanism for settling any disputes, you can ensure everyone is on the same page from the outset, which will prevent arguments from getting any messier than they need to be.
3. Intellectual Property
Depending on the nature of your business, the value of your intellectual property can range widely: for some, it will be tangential to operations, while for others it will be the most valuable asset in the company.
Wherever your enterprise falls on the spectrum, you will need to conduct a cost-benefit analysis to work out what level of protection makes the most sense for you.
For example, registration of trademarks and patents can be an extremely effective measure, but the process for obtaining them can be expensive and time-consuming.
These kinds of costs may not be attractive or realistic for some business owners, especially in the early days of a venture when they have yet to establish themselves in the market.
If you are unwilling to invest in formal registrations in the initial stages, it’s crucial that agreements with vendors, employees and subcontractors contain strict provisions dealing with the potential future ownership and use of any intellectual property or trade secrets that they do come into contact with during their relationship with your business.
4. Employment agreements
It’s not just intellectual property that business owners need to worry about protecting when it comes to employees. They should also consider adding non-competition, non-solicitation or confidentiality clauses to their employment agreements, in order to protect their interests in future.
The world of business can be a cut-throat one, and in my experience, it’s not uncommon to see workers at young companies leave to open their own shops, taking advantage of what they have learned during their employment.
Without these kinds of provisions in their employment agreements, business owners may find they have little recourse.
5. Licensing and regulation
Not every industry is open to all comers, and entrepreneurs may find they have unique licensing or regulatory hurdles to overcome before they can officially launch their business.
Some businesses are more tightly regulated than others, and even if there are no formal licensing procedures, many operators will still need to meet professional regulation standards, minimum insurance requirements or ensure compliance with laws and bylaws set by legislators at the federal, provincial or municipal levels.
The bureaucratic bodies that issue approvals and credentials are rarely known for their speed and efficiency, so it’s important to contact a lawyer early in the process.
*This post is not intended to be legal advice and should not be taken as such. Please contact McConnan Bion O’Connor & Peterson if you have any questions regarding this post or require assistance or legal advice regarding a cohabitation agreement.