Starting a business is not easy. It requires a good business idea, proper planning, raising capital, finding customers, dealing with competition, keeping up with industry changes and trends as well as dealing with other unforeseen business challenges and expenses. There are also legal elements to consider when starting your business. A good business start-up requires proper legal planning to ensure that you are fully equipped to deal with the inevitable challenges of the start-up.
We have summarized what we believe to be the key elements to consider when starting your business. There are other legal questions to take into consideration, but we believe that the following elements, once prioritized and taken care of, protect your business and ensure its growth and its success.
THE RIGHT LEGAL STRUCTURE
This is one of the first decisions every business owner has to make. It is also one of the most important decisions, as it can have long-lasting tax and legal consequences on your business.
There are 3 main legal structures to start your business: sole proprietorships, partnerships, and corporations. Each structure has its advantages and disadvantages. We invite you to read our latest article on the factors to consider for the incorporation of your business.
The choice of legal structure will have an impact on the taxation of your business, the liability you will face, the paperwork needed to operate the business, and your ability to raise capital. Therefore, it is important to analyze the nature of your business as well as your short-term and long-term business goals before making your decision. Is liability protection an important aspect of your business? Do you intend on raising capital soon? Do you intend on growing your business to a point where it might be interesting for you to sell your interests or pass them to another generation? If you answer âyesâ to all these questions, then perhaps it is best to incorporate your business from the start.
There is no right or wrong answer. However, it is important to consider and analyze the different factors detailed above to determine the best legal structure for you.
You can change the legal structure of your business at a later stage. For example, you can begin as a sole proprietorship, then continue as a corporation. However, it is easier and more cost-effective to anticipate the future needs of your business now and select the right legal structure for your business. Why not get it right from the start?
INTELLECTUAL PROPERTY & CONFIDENTIAL INFORMATION
The protection of your intellectual property (IP) and your confidential information (collectively, your âInformationâ) is an important aspect of your business start-up, especially for any business in the technology industry. Confidential information usually means sensitive information regarding your business, including, without limitation, IP, business plans, budget, pricing information, customer lists, trade secrets as well as any other critical information regarding the business. IP usually refers to inventions, know-how, techniques, programs, data, methods, processes as well as any intellectual property created, developed, or invented in connection with the business.
The protection of your Information is of the utmost importance because the viability of your business depends on it. You could lose business and clients, not to mention that any competitor in possession of your Information would acquire a tremendous advantage over you. All your staff has access to your Information in one way or another, from the part-time employee to the managing director. Your service providers and suppliers also have access to your Information. The business must remain the sole proprietor of its Information at all times. The best way to ensure such protection is through proper confidentiality and IP clauses in your agreements. Such clauses provide for the protection of your Information, including the full assignment of the IP in favour of the business. Your employment agreements, service agreements, and other agreements with your staff and service providers must include specific provisions for the protection of your Information.
CONTRACTS
Contracts are an essential element of your business. By contracts, we mean written agreements, because verbal agreements heavily rely on the good faith of the parties and that is never a good idea. Contracts have a variety of purposes. However, it is safe to say that proper agreements are critical for the management, growth, and success of your business.
Contracts ensure the smooth management of your operations. For example, if there is more than one business owner, a proper partnership agreement or shareholdersâ agreement (depending on your legal structure) is critical for the viability of the business. Do you have proper employment agreements, confidentiality, and IP assignment agreements with your staff? As previously stated above, such agreements provide for the full assignment of the IP to the business and the protection of its confidential information. They also contain solid non-competition provisions to prevent your staff from competing with your business. Moreover, the efficiency of your operations depends on your capacity to maintain stability in your relationships with other parties such as your suppliers and service providers. For example, a simple but avoidable misunderstanding with a supplier could create a dangerous ripple effect in your business operations. Good agreements with your customers are also absolutely vital for your business. They protect your business from liability and they help generate more revenues.
At Endlex Legal, our business start-up legal services are custom-made to ensure the highest productivity for your business. If you have a business and you believe that you have the 3 elements above covered, then you are on the right track to achieve your business goals. If, on the other hand, you are starting your business, or you have a business and you are wondering if you have the right legal foundations, please contact us.
Information provided in this article is intended as general introductory information only. The information provided in this article is not legal advice. It should not be construed as legal advice and should not be relied upon as such. Should you want legal advice regarding the information provided in this article, please contact one of our lawyers.
