Legal advice should always be tailored to each business. Yet, there are some legal issues and services all businesses should understand – even if these legalities don’t yet apply to them.
Generally speaking, all businesses need to know about incorporation, intellectual property, employment considerations, disputes, and contracts. Let’s delve a bit deeper into each.
1. What You Need to Know About Incorporation
When starting up a business, you’ll likely need to decide to operate your business in done of two of the most common legal categories: a corporation or a sole proprietorship. The differences can be a bit granular but in general, corporations are taxed differently and have different liabilities than other common business structures.
Corporations are considered separate legal entities: essentially, an ‘individual’ distinct from their founders, shareholders, directors, and officers. Along with other legalities, this creates a liability shield in which the corporate principals are generally not personally liable for the actions of the corporation.
Keep in Mind
Rare circumstances do exist that allow the court to pierce this corporate liability veil. Individuals within the corporation are not immune to being held personally liable in all circumstances.
2. What You Need to Know About Intellectual Property
Intellectual property is any work or invention someone created. This includes manuscripts, designs, content, and more.
When creating these types of property, you can protect them by filing for patents, trademarks, trade secrets, or copyright.
Subtle differences exist between each of these protection methods – but these differences are vital for you to understand. Patents, trademarks, trade secrets, and copyrights must all be maintained and protected in various ways.
Keep in Mind
Generally speaking, the ideas and intellectual property of entrepreneurs are often the most vital assets of new businesses. The smartest business move you can make is ensuring these precious pieces of property are properly protected.
3. What You Need to Know About Employment
When drafting employment agreements, think about instituting non-compete and non-solicitation agreements for all employees. If drafted properly, this prevents rogue or disgruntled employees from damaging or eroding your client base.
To incentivize your employees, you can also consider offering your employees stock options or shares as compensation. When operating a start-up company, this form of compensation can incentivize employees to increase the quality and efficiency of their work. The employee will have a personal stake in helping the business succeed.
Keep in Mind
Thinking about purchasing another business? Consider the potential employment issues that this purchase could trigger. Too often entrepreneurs only contemplate this once the purchase has been made.
4. What You Need to Know About Disputes
Should you run into legal disputes, remember that a corporation will be sued directly while a sole proprietor will be sued personally. This means that there is generally greater personal liability for a sole proprietor than there is for an individual operating an incorporated business. If you’re in an industry with a high risk of litigation, consider incorporating as soon as possible.
If you yourself are the director or officer of the corporation, however, you may be held personally liable in specific scenarios. This includes unpaid taxes by the corporation, as well as unpaid employee wages.
Keep in Mind
You should consider having a Unanimous Shareholders Agreement drafted if you have multiple shareholders. This agreement sets out the rights and obligations that shareholders have to one another. It also determines the mechanisms for dealing with shareholder disputes. Referring to this agreement when disputes arise is crucial.
5. What You Need to Know About Contracts
For sole proprietorships, the entrepreneur of the company will sign contracts on his or her own behalf. For corporations, entrepreneurs can act as agents of the corporation and execute contracts on behalf of the business.
Don’t Overlook Cybersecurity & Privacy Risks
Businesses need to evolve with the times. There is an increasing amount of information being shared, stored, and transmitted digitally by virtually every business. Many companies are also storing sensitive customer information electronically.
Legislators are increasingly enacting laws that punish businesses that fail to safeguard customer data appropriately, yet many companies that aren’t tech-focused tend to overlook the heightened need for adequate cybersecurity. However, paying attention to these risks and the corporate actions necessary to prevent breaches of security is vital to all business owners.
Common Misconceptions about Legal Services for Entrepreneurs
Even in the days of the information highway, it’s easy to misunderstand some integral parts of business law. Most commonly, we see misunderstandings about the liability of incorporations, filing for bankruptcy, and the need to plan ahead.
When considering legal services for your business, make sure you remember the following:
- An incorporated business has different liabilities than a sole proprietorship but that doesn’t mean that the principals of the business can’t be held liable for anything.
- Bankruptcy is not a consequence-free method to rid yourself of debts. Filing for bankruptcy is a complicated ordeal and – while it might be a necessary or occasionally beneficial course of action – it’s a process that shouldn’t be considered lightly.
- An ounce of prevention is worth a pound of cure. In other words, legal services are required sooner than you’d usually think. The most common mistake we see with businesses is waiting too long to seek legal advice. A severely mismanaged corporation is incredibly costly to reorganize. Hiring legal counsel at the beginning can greatly mitigate these costs.
Have any questions about your business or any legal services for entrepreneurs? Contact our capable team of professionals to set up an appointment today.