Navigating the complex world of business is definitely not for the faint of heart or for those who quit easily. To get where they are now, iconic companies such as Apple, Amazon, Starbucks, Disney or Microsoft have had to evolve constantly, keep up with market trends, listen to the voice of the customers and…sort out a huge number of legal issues.
Inconvenient as they may be, legal issues are part and parcel of running a company and, throughout your executive journey, you will have to learn how to prevent them and how to deal with them when they arise.
Choosing the wrong corporate form
When starting a business, most entrepreneurs focus heavily on the product they are developing, how it can make customers’ lives better and how it can be rolled out on the market – and that’s a noble goal, but, once the first exciting, informal years go by and the company becomes more stable, many executives realize that they chose the wrong business structure. Terms like sole-proprietorship, partnership, limited partnership, corporation or limited liability company sound very vague at first, but understanding what each structure implies is essential if you want to avoid legal complications in the future.
Disagreements between shareholders
When you share the same vision with a friend, family member or colleague, starting a company together sounds like an ideal solution, especially because you can distribute tasks, bounce ideas off each other, share the workload and the financial burden. However, once they pass the “work from the parents’ garage” stage and move into actual offices, there are very few, if any cases of companies where shareholders and co-founders don’t have a misunderstanding. Sometimes, one of the shareholders might prefer a different path for the company or wants to quit to pursue a different endeavour.
Thinking about this isn’t fun, but, no matter how well you get along with your shareholders and no matter how much you trust them, you shouldn’t start working together without a solid shareholders agreement. This is an essential legal document that outlines the rights and responsibilities for each shareholder, how the company is going to be run, who takes important business decisions and what happens with the company if one of the shareholders wants to leave. Without this document, a business can drift afloat and it may even dissolve as soon as there are differences of opinion between shareholders.
Intellectual property and breaching trade secrets
Whether you have a web development company, a health clinic or a local flower shop, your business has a unique corporate identity. From its logo and slogan to the colours you use on your website and the names you have given your products, all of these can be intellectual property elements and they need to be protected. Otherwise, anyone who wishes to re-use them, distribute them or claim them as their own can do so without legal repercussions. Intellectual property disputes can take many years to resolve and, without proper legal representation, you risk losing the very assets you’ve worked so hard on developing. Small businesses are particularly vulnerable in such cases, because they are “hunted down” by large corporations with more resources and stronger legal teams, so the earlier you protect your intellectual property, the better.
Legal issues with employees
Employees are a company’s biggest strength, but they can also turn into a major legal liability if they are not managed correctly and if the ground rules of your collaboration aren’t set out from the very beginning. When first starting a company with few employees, their activity can be rather informal, but this is a risky course of action that legal experts do not recommend:
- Employees’ rights and responsibilities need to be laid out in the employment contract.
- Every company should have an internal code of conduct that workers must respect.
- Unless they work from home, company employees need to have a work environment that respects health and safety guidelines. If their job involves the use of special equipment, heavy machinery or dangerous chemical substances, it is management’s responsibility to instruct them and offer them protective equipment. Workplace accidents are very common and employees who sustain physical injuries at work can always hire no win no fee solicitors and file a legal complaint against the company.
Improperly drafted contracts
Whether they are drafted between businesses and clients or between business and their partners, contracts are very important. According to an independent study, 7% of all businesses had to face legal consequences at one point because of improperly drafted contracts, so it’s essential to have the contacts drafted or revised by a team of legal professionals before they are signed by both parties.
Displaying a disrespectful attitude towards the competition
No matter your field of activity, you will have to deal with competitors and, from time to time, you may feel the need to talk about your competitors directly. After all, companies have been sniping at each other directly in ads for decades. However, this is not, should never be, a recommended marketing practice, at least not from a legal standpoint. As fun as direct competitor criticism and “trash talk” may be for customers, they usually imply some serious legal battles going on in the background and businesses who disrespect their competitors can face serious charges.