Tough call: Vital aspects of the law every entrepreneur must master
Many people desire to start their own businesses, partly motivated by the need to ‘become their own bosses,’ and the belief that it would be a smooth ride all through.
They are however rudely shocked to the reality, when the journey begins. Many discover that entrepreneurship is a terrain that comes with numerous pitfalls, one of which is the legal elements of the business. If not well managed, the legal side of business can have monumental implications, capable of resulting in tough times and eventual business collapse. For every business, a strong legal foundation is essential just as it is important to ensure the business is on the right side of the law at all times. For the entrepreneur in the 21st century, being well versed in the statutes of the law especially in areas that pertain to specific business operations and interests is no longer a superfluity; it is a necessity.
At this juncture, the story of Snap — the parent company of Snapchat, the image messaging and multimedia mobile application — would suffice. Two years after its establishment, Snap paid dearly for a mistake committed at the very beginning. In 2014, a lawsuit was brought against Evan Spiegel and Bobby Murphy, co-founders of Snap, by Reggie Brown, an ousted Snapchat early ‘employee.’ Snap had to pay Reggie $157.5 million in settlement because the original idea for the application was Reggie’s and he had been pushed out of company without compensation or credit for his contributions.
The case of Snap is only one of many wherein businesses have suffered serious implications because they did not pay the required attention to the legal side of their operations. To help businesses avoid many of the possible pitfalls in business management, entrepreneurs and business managers must be aware of and comply by the law. Of the numerous legal sides to business, these five are the topmost, which all entrepreneurs must master:
For many start-ups, a major source of concern is how to share the business’ equity. Equity-related challenges arise often because there is no documentation on how it should be shared. It is therefore important to identify who the necessary stakeholders are and determine the allocations to which each individual is entitled based on the role each person will play in the future, within the scope of their capabilities and competences. It might be regressive and disadvantageous to base it only on how well they fared in the past. It is also important to consider including vesting clauses, which will enhance business interests over personal interests and enable founders to gain more equities with time, depending how well they meet certain parameters.
According to Merriam Webster Dictionary, Intellectual Property is an idea, invention, or process that derives from the work of the mind or intellect. It includes patents, copyright, industrial design rights, trademarks, plant variety rights, trade dress, geographical indications, and in some jurisdictions, trade secrets.
A patent is a form of right granted by the government to an inventor, giving the owner the right to exclude others from making, using, selling, offering to sell, and importing an invention for a limited period of time, in exchange for the public disclosure of the invention. In the same light, copyright laws protect intellectual property from being copied unlawfully while a trademark is a word or a combination of words, phrase, symbol or design that distinguish a brand from another.
Considering this, it is yet important for business interests to be protected and, as such, employee should sign a proprietary rights agreement, which transfers all intellectual property produced during their employment to the company. Without this, products developed by employees will remain the intellectual property of the individual.
From one jurisdiction to another, tax laws differ; and as time evolves, so do tax laws. It is therefore important to be aware of the changes and differences in legal and regulatory obligations for taxation — and be able to engage the services of someone who does — in order to consistently be on the right side of the law. Entrepreneurs must be able to run their businesses and make decisions that are in line with appropriate tax regulations, with a clear understanding of the risks their business is exposed to, if they falter.
It is necessary for entrepreneurs to not only understand but to comply with labour laws that apply to their area of business. These laws ensure the efficient management of workers affairs vis-à-vis trade unions and the government. Business owners must be aware that there are instances where an infringement will not only make their organisations liable, but also expose their personal assets to takeover.
The Nigerian labour law of 2004, for instance, stipulates how an employee’s services can be terminated, and it includes where the employee passes away and where either party terminates the employment contract, given the other party due notice. Employers must also be aware that, within the terms of the contract, all payments must be made to an employee before contract termination, otherwise the employer might bear damning legal implications.
Insurance exists to protect personal and business interests, and it is wrong to posit that—as many an entrepreneur do—that business insurance is a luxury. To the contrary, insurance is a necessity. Whether it is property insurance, health, workers compensation insurance or any other kind of insurance, it is a worthwhile protection against, and in the event of the occurrence of, any litigation, injury, catastrophic loss, liability, theft, or any other form of danger. It is important that founders are properly enlightened about it, so as to be able to lead others within their organisation aright.
As with other facets of life, information is power. But information can only transform circumstances when applied. Therefore, it is important to apply all the aforementioned and also take it a notch higher by digging deeper to discover more. Always bear in mind, however, that ignorance of the law is no excuse. Do not be on the wrong side of the law – the power is in your hands!