When you first set out and start your business, you’re likely to have all kinds of things on your mind. You’ll be bursting with creative ideas for your branding, visions of how you’re going to make a splash in your industry, and probably more than a few plans for what you want your executive office to look like! One thing which countless new entrepreneurs manage to neglect is the various legal concerns which come with running a business. If you don’t spend enough time chewing over the legalese applying to your business, it can really come back to bite you, and sink your whole operation before it gets started. To make sure you don’t shoot yourself in the foot, here are some of the biggest legal mistakes you have to avoid in those early stages.
Find The Right Legal Structure
First of all, a lack of incorporation. It would be pretty near impossible to count the number of entrepreneurs who have failed to establish the correct legal structure for their businesses. This can cause major issues when you’re trying to bring in outside investors, one of the founders leaves, or even worse when you get sued by an employee or customer. When you haven’t established the correct legal structure, you open yourself, and possibly a lot of your upper management, up to personal liability. This can mean all kinds of damaging legal issues, so make sure you’re not putting this important process off! Read up on incorporation, and determine whether your best legal structure is an LLC, C or S corporation.
Another huge blunder is operating without an official shareholder’s agreement. You’ve obviously got a grand vision for the future of your business. However, you still need to consider the possibility that you’ll eventually want to sell the business, or that one of the founders will leave. When either of these things happen, you’ll need a shareholder’s agreement. This will guide everyone’s actions, and avoid any tumultuous disagreements or other confusion. Before you stimulate any more rapid growth, sit down with a good commercial lawyer and draft one of these agreements. Make sure the documents cover how any issues between shareholders will be settled, and what will happen should one of them leave, die, or get divorced.
Another legal mistake which you can’t afford to make is operating with no HR guidelines. At any business, you’ll have certain things which you’ll expect your employees to do and not to do. Some of these might seem obvious to you and your management. However, in the eyes of the law, if you haven’t set it all out in writing you might as well have not set it out at all! There are countless cases of young businesses being bankrupted after an unfair dismissal case. If you terminate an employee for breaching a rule you have, but that rule isn’t set out in writing, then you could end up living through this kind of nightmare as well! Employment law and HR are pretty complex topics, so bring in a professional, or invest in some well-reputed HR software. This will help you to formulate airtight, codified HR policies which work well for the company.
Cover Your Assets
Libeling the competition is another serious blunder which every business needs to steer clear of. I’m not saying you can’t say that you’re better than your closest competitors. I’m just saying you have to be careful about the way you do it. It’s obviously going to be very tempting to talk some trash about your closest competitors, whether in your marketing materials, on social media, or through any other communication channel. However, doing this can often bring you dangerously close to breaking the law. The legislation surrounding libel and slander can be hard to understand, so the best way to cover yourself is talking to the lawyers. Whenever you’re planning to say something public that may cross the line, be sure to talk to a corporate lawyer. They’ll be able to explain what’s libel and what’s freedom of speech.
Neglecting copyright, trademarks or patents will also drive your business into the ground if you’re not careful to avoid it. Every minute that goes by where your intellectual property is unprotected, you’re running the risk of another, less creative business owner stealing it. Well, “stealing” isn’t the right word, because them taking your idea will be totally legal! A lot of different things come under the category of “intellectual property”, and you may be finding it difficult to keep track of it all. If this is the case, talk to an experienced lawyer and seek their help in taking inventory of the business’s intellectual property.
Vince Frost on IP theft
Avoid Litigation At All Costs (When You Can)
Most of this post has been focused on what you can avoid to defend your business from damaging legal action. However, it’s also incredibly important that you don’t lean too far the other way. I’m talking about lawsuits, and the mistake of mounting too many of them. We live in a time when lawsuits are more commonplace than ever before, and this has had a massive, detrimental effect in the behavior of a lot of business owners. Obviously, if someone uses your intellectual property without permission, or commits some other kind of offense, you’re going to be pretty angry. However, it’s important to approach these situations logically rather than emotionally, and not to mount a lawsuit straight away! The person or company you’re suing will certainly put up a defense, straining your legal team and costing both of you a lot of money. By the end of a lot of lawsuits, the only people who have won are the lawyers! It’s always better to negotiate with the other party rather than litigate straight away.
Failing to protect customer data on your website will also put both your professional reputation, and the future of your business at risk. You may think that hackers are more likely to target larger, well-known companies, but this sadly isn’t the case. Because big corporations have the best security resources at their disposal, a lot of hackers will purposefully target smaller businesses, seeing them as easy targets. You may be at greater risk of being hacked than you first thought. Consider what would happen if your site went down, or a load of customer’s sensitive information was stolen. I’m sure it’s not a pleasant image! Be sure to look into some services which will allow you to keep your site, and all your customers’ important data, nice and secure.
Secure the Perimeter
Another legal issue which far too many business owners neglect to think about is the personal use of the internet at work. We’re on the verge of 2017 now, and it’s harder than ever for business owners to control what employees are using the internet for when they’re at work. However, if they’re left (literally) to their own devices, you could find your business in some serious hot water. When it comes to company-owned devices, make sure you’re monitoring everything your employees do, setting up alerts and filters, and setting out strict penalties for anyone endangering the company’s reputation or security. Though the majority of goofing off is harmless, there’s the occasional website which has the potential to give hackers a route into your company servers, steal valuable information, and wreak all kinds of other havoc.
As your business grows and develops, make sure you’re avoiding these costly legal mistakes. Mulling over all the different laws and regulations your business is subject to certainly isn’t the most exciting thing you’ll do as a business owner. However, it’s still exceedingly important when you’re first starting out.