Put It In Writing
Four legal issues every entrepreneur needs to have covered.
In the excitement of conceiving and developing a new idea and launching it into a business, it’s easy to overlook the mundane technical aspects related to a formal enterprise. Unfortunately, failing to do so can cause even the most successful launch to crash and burn.
“Every entrepreneur needs to professionalize his operation,” said Scott Schneider, a partner with the Fisher Phillips law firm who has advised many fledgling companies. “If the business takes off, but the entrepreneur has not protected himself, success can turn quickly into failure.”
While there are many issues to address, Schneider identified four in particular: protecting intellectual property, managing legal risks, implementing formal agreements, and clarifying partner roles.
Protect Intellectual Property
“A lot of entrepreneurs look for folks to collaborate with,” Schneider said, citing partners, financial backers, consultants and even employees. “You have to protect yourself from having one of them say, ‘That’s a brilliant idea, I’m going to go out and do it myself.’”
Copyrights and trademark registrations are obtained fairly simply, and usually accrue to the originator as a matter of right. Formal registration is advised, and typically costs less than $1,000. Patents are more complicated, but as Schneider pointed out, new businesses are increasingly likely to be about ideas rather than products.
Manage Legal Risks
Even more basic, though no less important, are things like non-disclosure, non-compete and confidentiality agreements. Schneider’s position is that every entrepreneur should have standard versions of these and get them signed by everyone who becomes involved in the nascent business.
Examples of these and many other business forms are widely available on the internet. “Remember that these are templates,” Schneider cautioned, “and may not necessarily be enforceable in a state like Louisiana, which has its share of quirky laws. Online forms are a good starting point, but it is probably worth having an attorney review your documents.”
Bringing forms you have prepared for review costs less than asking a lawyer to create them from scratch, he added, meaning you get the best of both worlds: affordable documents that you can trust to do their job.
Implement Formal Agreements
Other types of initial forms and agreements include things like basic contracts, employment letters and benefits forms. “When you initiate these, it means you set the terms for them,” Schneider noted.
One particular type of document Schneider highlighted is invention assignment agreements. “Establishing who owns property invented while working for a company is imperative,” he said.
Another key issue is establishing legal and insurance protections. “There are risks associated with starting an entrepreneurial venture,” Schneider observed. “You want to take the necessary steps to protect your personal assets and your business assets.”
On the personal front, this begins with setting up a corporate entity, which shields the entrepreneur’s house, bank accounts and other assets from any type of legal action. Once the corporation is established, business owners should obtain all necessary insurance, including general liability, employment (including workers’ compensation), and others that may be specific to the type of business.
Clarify Partner Roles
Finally, Schneider emphasized the importance of partner agreements. “When you’re brainstorming an idea over a couple beers, no one thinks about these things,” he said. “But what happens when partners begin to disagree and decide to go separate ways? Who owns what? How are revenues going to be distributed?”
While partner agreements don’t have to be complicated, they should clarify core issues such as decision-making protocols, revenue allocation and ownership rights. They should be developed as soon as the partners decide to move forward.
Depending on who you listen to, either the genius or the devil is in the details. It doesn’t take a genius to realize that managing these kinds of details up front can keep the devil at bay further down the road.
When creating legal forms, a good place to start is online legal services like the following. Just make sure to have a Louisiana lawyer look them over as well.
Keith Twitchell spent 16 years running his own business before becoming president of the Committee for a Better New Orleans. He has observed, supported and participated in entrepreneurial ventures at the street, neighborhood, nonprofit, micro- and macro-business levels.