Everybody wants business growth, but is your business growth protected?
With content ideas flowing, networking opportunities being prioritized, and long-term strategies being made, it would be evident that there’s a lot of work to be done. However, integrating legal into the core of the business is an important thing as well.
Because when it comes to protecting those ideas and setting boundaries with your stakeholder network, legal becomes the protector at the forefront of your business. Think of it as your business’ insurance and protection.
Tune in and learn from Myra Beal, general counsel and chief of staff Metigy, as she shares the fundamentals of legal, and what your business needs to apply.
Legal is one of the most misunderstood aspects of starting and running a small business. The majority of people who start a small business do not consult with an attorney. However, it is one of the smartest things you can do for your new company.
You should work out legal measures before you launch your small business, or if you’re already established, it isn’t too late! With the help of Myra’s free and professional advice, let’s explore 6 crucial factors to consider:
1. How is your business structured?
First of all, assess your business. Are you a:
- Sole trader
It’s important to take note that as a sole trader or partnership, you are leaving yourself personally liable. These structures do not have the protection of a separate legal entity or creditors. Additionally, as a partnership, each partner is jointly and severally liable for debts.
If you are a sole trader or partnership, you don’t have the protection of a separate legal entity being a company. Consider having a company for that protection. And certainly, if you have co-founders or you’re working with other people, then having a company is just a much simpler way to divide equity and to enable new people to come along and to get things like investors.
If you’re starting a company, think about having a shareholders’ deed or a shareholders’ agreement in place, and brainstorm all of the possible scenarios that may happen between your founders. Examples are:
- What equity and how does it vest?
- What are the roles and responsibilities of each stakeholder, and what happens if one leaves?
- How are decisions made?
- What would happen in a capital raise?
These are crucial things to think about and to document because everyone goes into business with really good intentions. But similar to a prenuptial agreement for a wedding, you just never know what’s going to happen. It’s important to really think about these upfront and come to an agreement that everyone’s happy with.
2. Contracting around IP
Why is it crucial for you as a founder to assign your intellectual property rights? Intellectual property is the core value to most businesses. After all, founders have worked on ideas for years. So ensure that you have:
- Founder IP assignments
- Employee assignments – make sure all IP vests with the company
World Intellectual Property Organisation (WIPO) explains the importance and benefits of integrating this into your business. Alongside their case studies on other businesses and how they applied it, learn how to build value and growth to your own SME with intellectual property.
3. Employee share schemes and issuing shares
By shaping the leadership of over a thousand Google managers across 13 countries, Hiam from The Culture Equation managed to contribute towards the large success of the business and see it grow from 21 to 110 billion in revenue. With an impact like this, wouldn’t it be justifiable for her to receive a share of Google’s success?
As your business grows, employees would feel more involved with the company with more stakes by using Employee Share Schemes (ESS), and benefit alongside the company’s success. This could involve:
- Giving shares for the company at a discounted price
- The opportunity to buy shares in the future.
Implementing this comes with a lot of complications from a legal perspective, a tax perspective, or an accounting perspective.
You do really need to get specialist and tailored advice. Not everyone is an expert in these areas so it’s important to get it right at the beginning. Otherwise, any offer that you make can be invalid or can create really big problems over time. This would cost you a lot of money to back-track and solve.
4. Do your terms & conditions actually reflect what you do?
Yes, it’s a convenience to copy and paste contract templates or texts for your own business’ terms and conditions, but it’s also a very risky practice to do.
Terms and conditions are there to limit your liability and obligations and should exclusively state all key expectations between you and your stakeholder. Prior to creating your T&C’s, certain questions you can ask yourself are:
- If you’re taking payments from customers will you be billing monthly?
- What activities will take place during your involvement with your stakeholder?
Your terms and conditions need to reflect the terms of what you are providing to customers. Otherwise, you’re leaving yourself open to losing money or getting into a credit card dispute.
5. Commercial contracts
Any agreement you have with larger customers, enterprise agreements with bigger customers, but certainly, any arrangements that you have with your suppliers or with your partners are covered in the bucket of commercial contracts.
Is your contract well-thought out?
Similar to your terms and conditions, the most important things to think about are starting with a quality-based document, but having that clarity of thought to really document what is the arrangement between the parties.
What are the deliverables that each party is bringing to the table? When do they need to be delivered? What are the success metrics? Is this partnership working or is it not?
Do you have a limitation on your liability?
The other things to think about are your limitation of liability. You don’t want uncapped liability, especially if you are a small business. You could leave yourself open to a really large amount of liability incidentally. And certainly, things like consequential loss are things that you should be carving out from your commercial agreements.
Can your employees complete the contract correctly?
Other things to think about more logistically are whether your employees are trained to complete some of these contracts, whether they’re filling them out correctly. In fact, who has the authority to sign these agreements? It might not be appropriate for all of your employees to be contracting on behalf of the company. So these are things to really think about upfront.
Have you considered a dispute resolution mechanism?
What is your business’ process behind addressing stakeholder disputes or grievances? Most of us don’t want to resort to legal action because of the large costs that come with it.
So ensure that your business has a clarity of thoughts so you know whether or not a party is performing their obligations. Then in fact, can you just simply terminate the agreement if it’s not working, or is there some other dispute resolution mechanism that you may be able to resolve the dispute without spending enormous amounts of money?
Keep the contracts easy to read and at a certain level of quality: Have your key terms of the contract separated out from the main part of the agreement. It means that you can just go in and insert the relevant term of the agreement, the amounts, some of the other key details, and you don’t have to go back and complete a whole different contract each time. So that’s a real time saver, but also, it’s a protective mechanism for the company to make sure that all of your contracts are going out at a certain level of quality.
For more advice, here is a guide on dispute resolution mechanisms that you can extract safe practices from.
6. Employment issues
There are numerous factors to think about when it comes to your employees. The first thing is to start with a good employment agreement. Protecting your intellectual property within that agreement is really important.
Secondly, are your employees covered by an award? That’s certainly relevant to Australian employees but all jurisdictions have different rules around remunerating employees. Think about the following points:
- What leave entitlements are there?
- What are the employee entitlements?
- How am I tracking them?
- Is there some technology that can support me with my employee management?
- Probation periods and termination processes.
How to find the right lawyer
There’s no way to cut corners and expenses when it comes to finding the appropriate lawyer with high-quality advice. Yes, you can find a friend or family member who practices in an unrelated field, but to optimize your time and amount of the right advice, it’s worth investing into the right one. Ways that you can find the right lawyer is by:
- Attending presentations/ expert panels
- Asking an investor/ accelerator/ incubator
- Asking business acquaintances for a referral
Legal Advice: In summary
As your business establishes and grows with more employees and people, it’s important to think about keeping your intellectual property safe and have clear agreements between you and all parties involved. So to avoid any disputes, think about assessing your business structure, your intellectual property and arrangements with partners and additionally, keep your agreements simple and clear.
And if you’re ever in doubt of your agreements, hire the right help so you can take up less time and stress in the future.
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