Common legal challenges startups face and how to manage them

Years of hard work can go down the drain in one go on account of legal exposure of the business

For an ordinary entrepreneur launching a business it is all about the money. Priority considerations are seed capital, marketing budget and various avenues that a business will engage in to generate revenue.

However, in the midst of this entire chase for revenues one key item that is often overlooked with grave consequences is the legal issue/exposure.

Of what importance is it to launch and grow a business if at one go all that hard work can go down the drain on account of legal exposure in one way or another?

The following are some of the common legal issues startup businesses or small and medium enterprises should consider.

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Business structuring

For many a business person this is no a brainer. One is often likely to start as a sole proprietorship business and plan to revisit the structure once the business grows or in the wake of YAGPO (Youth Access To Government Procurement Opportunities) and other opportunities register a company, partnership, LLPs etc

It may seem to be a casual issue but there are various instances where this has been detrimental. What happens when an investor comes on board? How does the founder negotiate the terms? It is important to have this clearly defined as early as possible based on the industry one is operating in.

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This should be one of the key considerations when drawing up the business plan. Different business structures have different legal as well as tax implications and it is imperative that this is undertaken with sobriety.

Business foundation documentation

So you have decided on a business structure, great; there is the other limb of documentation. If it’s a company what is the shareholding structure like? Who gets what percentage and why? What are the responsibilities of each party? How are decisions to be made and by whom?

Find out as to what you will need to comply with and get it over with.

These questions are often ignored especially when founders of a business have a common history together be it as friends; former schoolmates’ etc .It has regularly been a bone of contention when the relationship between the partners goes sour for whatever reasons or when key business decisions have to be undertaken. Have the documentation right from the onset

Business compliance

The next thing is to figure out what laws and/regulations you need to comply with in your line of business. You don’t want to be in hustle with authorities over compliance issues. Inquire as to what you will need to comply with and get it over with. It saves you the headache of running your business looking over your shoulder every time and enables you to concentrate on what is actually important: running your business.

Employment laws

Once you have done all the initial compliance you may require a hand or two to help with running a few operations. It is common practice to get into an oral agreement with another party and have them begin working for you. Nonetheless what happens when the said person doesn’t own up to the duties and responsibilities you agreed on? What if they suddenly want more money outside what was earlier agreed upon?

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What fallback do you have to prove what the terms were? How do you terminate the agreement? It is imperative on any sound business person to have any employees they bring on board to have a written contract on what is expected of both the employer and employee. This also extends to any specialists or experts you engage with. Ensure everything is in writing and terms are clearly defined.

Non-disclosure agreements/Confidentiality agreements

As a business person one of your key tools is information which, in the hands or ears of the wrong party, can mean loss of revenue. For example, you are a marketing professional and have come up with a unique strategy to increase sales or market a certain product/service and want to pitch the idea to a company. You proceed to arrange a meeting and explain how you can enhance their revenue streams in xyz way. After the meeting they go ahead to implement it without you. You will certainly feel duped, won’t you?

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What if the entity had an agreement that precluded them from sharing this information for a certain time frame? This may have gone a long way to protect your ideas. It is important to note that this is not sufficient protection depending on the industry one is operating in and extra legal protection may be required.

Contractual engagements

In the course of every business, one has to deal with suppliers, clients etc. It is important to also secure such agreements with regard to timelines, payment amounts and payment modalities. What avenues do you use to seek resolution of a dispute?

Make it a habit to capture everything in writing and have all the parties to it execute them. This will be a good practice to have as proof in case any side does not own up to their obligations. Remember, aways prepare for the worst case scenario. What documentation would you need to back you up outside the he-said she-said situation?

DIY/Seek expert advice

Due to the financial pains of starting a business or even in the course of running one we are often cash strapped for any extras that do not generate revenue. While it is prudent to know as much as you can about your business, the laws and all related information, it is imperative that one seeks the advice of a professional from time to time.

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Schedule to do this as much as possible it maybe quarterly or whichever fashion one may adopt but ensure you are in the know about the legal status of your business, all changes in the law regarding your industry of operation and the impact on your business.

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CaveatThe information provided herein does not constitute legal advice and should not be construed as such. For precise legal counsel please contact a professional.

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