Legal Issues Every Entrepreneur Should Know About
When you launch and grow a business, there are legal implications in almost everything that you do, and sometimes you may not even know it. In this blog post, I will highlight some of these implications.
Picture this. You and a friend have a great idea, decide to get together as co-founders, and start a company together. You start meeting up twice a week to brainstorm and work on a business plan. Pretty soon, the two of you have chosen a company name, designed a logo and have a website set up.
What are the legal implications at this point?
- All companies must have a business structure. What type of business structure will you have? Partnership or corporation? Without any business structure, you can’t really do things such as open a bank account, sign contracts, or set out the relationship that each co-founder has with the company.
- What percentage of the company will each co-founder own? This will need to be documented in a partnership agreement, or the issuance of shares.
- What happens to the company and the co-founders when a future circumstance, such as the co-founders wishing to part ways, arises? This will need to be documented in a partnership agreement or shareholders agreement.
- The company name and logo are considered to be trade-marks. Are they confusing with existing trade-marks? Are they “good enough” trade-marks so that they will benefit from trade-mark protection laws?
- When you and your co-founder are meeting up to work on your idea, the work that you do is considered to be intellectual property (“IP”). This includes the business plan, the company name, the logo and the website design, amongst other things. Who owns all this IP? The company or the co-founders? Without more, it’s very likely that the co-founder who did the work on each particular item owns the IP for that item, and not the company. In order for the company to properly own all the IP generated the co-founders must assign their IP to the company.
Consider the what-ifs
It’s very likely that you may think that it’s still too early to put in time and effort into all things legal. But the truth is, life happens, and sometimes by the time you feel that the you’re ready to protect your company’s legal rights, it may be too late. Here are some examples of what could happen:
- One co-founder may get too busy with other commitments, and may not want to work on the company anymore. Without more, this co-founder may still own a percentage of the company, but not be doing any more work on the company.
- The co-founder who designed the logo and website doesn’t want to work with the other co-founder anymore, and decides to start their own company using the same logo and website. If this co-founder hadn’t assigned IP to the company, they actually do have the right to continue using the logo and website that they designed.
- There is a breakdown of the relationship, and the co-founders wish to part ways. But at this point, how do you even part ways, if there was no documentation detailing the mechanics of parting ways, and who owned what percentage of the company?
As you can see, in this example, the company has barely launched, and there are already so many legal implications to consider. And needless to say, as your company grows, your legal needs will continue to increase. It is always better to be aware of all these legal implications so you can turn your minds to them and act accordingly, sooner rather than later, and of course, before it is too late.
Adrienne Ng is is a corporate/commercial and trade-mark lawyer. She is co-founder of Open LLP, a law firm for start-ups, entrepreneurs and technology companies. Adrienne is a speaker at Mamas & Co.’s New Business Bootcamp, happening April 22, 2017.