When it comes to starting a business, you should never assume that all will go according to plan. In fact, the reality is that the risk involved with owning your own company is great, and the chances of having a legal situation is much higher than simply working for someone else. However, most business owners would say that the rewards far outweigh the risks involved. That said (and in the spirit of Halloween), we felt like we still need to discuss 5 legal business problems that every business owner should prepare for.
1. Friendship turned Partnership Gone Wrong
We often see friends or family go into business together within our practice. And it makes sense, especially if you already spend all your time together - why not go into business and make money together too! However, work and play don't always goes hand in hand. What makes your friend so awesome could also make them a horrible business person. And while you may have been able to overlook their attention to detail when it comes to planning a social engagement, not being able to track the details of your business could directly affect your ability to provide for your family.
No one wants to ruin a friendship over the business, so there are a couple of ways to navigate this scary legal business problem.
For one, don't enter a partnership with your bestie. Just kidding - that's unrealistic. However, you can create a partnership agreement before you invest any money in the business or take on clients together. While we can certainly help you draw legal documentation, you can also simply write an agreement with basic terms such as who owns how much of the business (percentage of business - which is also necessary for other legal documents), how you'll divide profits, who has final decision making power, etc.
2. Scary Legal Business Problems - the Verbal Agreement
Not all legal business problems are going to be with your business partner. Oftentimes, problems can arise when you simply "do business" with your friends. For example, let's say you have a photography business and regularly photograph one of your friend's families each fall. Years ago, you made a verbal agreement with them that you wouldn't share any of their images on social media and they agreed that they wouldn't use your images for more than personal use.
Fast forward 5 years and you find out that this friend has entered one of your photos into a national photo contest. They win the contest and your photo is published in a national magazine without any photo credits.
Unfortunately, because you never had a formal written agreement, that verbal agreement is a distant foggy memory that would hardly stand in court if you took it that far. So, what do you do to avoid this situation?
Contracts are key! When you own your own business, it's important to keep written contracts for just about everything (a receipt of sale serves the same purpose), especially when it comes to how you'll do business together. A contract should spell out each party's expectations, pricing, deadlines, as well as consequences for when one party doesn't fulfill their end of the agreement. Regardless of what you're "selling," have a contract!
3. Scary Legal Problems - Someone Steals Your Stuff
It's one thing when someone walks out of your "store" without paying. We call this petty theft or shoplifting. But what about when someone "steals" your intellectual property? This could be pictures or content from your website, but also includes copyright, trademarks or patents.
The best way to protect yourself from this scary legal problem is to legally register your copyright and trademarks. While you can toss a copyright notice wherever you want, it's important to register your work so that you can rightfully sue the other party under the federal copyright statute as well as be eligible for statutory damages and attorney fees should be successful in litigation. Without this protection, you have nothing to stand on.
4. Getting Sued
One of the most common reasons new business owners come to us to work through establishing their business as a legal entity is the fear of being sued. There's truly nothing scarier than having a process server show up at your home with a lawsuit in hand, telling you that you've been sued; except the idea that you end up having to hand over your home or every dime in your bank account to resolve the problem.
The easiest way to avoid being sued is to form a legitimate business entity that is separate from you (not sole-proprietor). While it can cost a little more on the front end, the legal protections provided are worth the hassle.
5. Confidentiality or Non-Disclosure Agreements
Can we be honest? You didn't hear this from us, but your secrets are never safe when it comes to sharing the most intimate details of your business with employees or independent contractors. In fact, even your closest friends and family aren't always great about keeping secrets.
As such, we find it absolutely necessary to have confidentiality or non-disclosure agreements between yourself and other business parties. This could be a potential employee, an investor, vendor, or other parties - anyone who has a working relationship with you in which they know details about your business that you'd prefer they didn't share with others. Signing such an agreement will prevent a scary legal business problem.