Do You Need To “Lawyer up” as a Small Business …

August 19, 2015

Do You Need To “Lawyer up” as a Small Business …

You’re a Small Business & still have no legal adviser???? Here’s why….  lawyer

OK!! Seriously… There is a lot of talk these days about how small business should use law firms as advisors and not crisis managers. The reasoning is obvious: when lawyers are consulted regularly, they are able to spot issues before they become larger problems and minimize financial exposure. Small businesses seek legal guidance every day; failing to paper an agreement, detail their relationship with partners or investors, draft social media guidelines or protect their intellectual property can lead to complex legal problems and financial stress.

However it’s hard to persuade cash-strapped small businesses to assume a certain cost now to avoid an uncertain one down the slippery road.

Read on as we discuss some aspects small business have struggled with on the legal front. Here are 5 areas where small business gets trapped so keep a sharp look out for them, and jump for legal help as soon as you smell trouble, if you haven’t already done so. Keeping a small business friendly law firm close-by is sometimes important.

  1. Protect you IPR: Did you know 60% Indian small businesses suffer from IPR lawsuits

A small business typically invests blood and toil in creating some intellectual property and thus protecting the IP becomes core, as numerous examples of companies like XAOMI show getting into IPR battles with large players is really a lose for most small business.

A retail consulting company had developed proprietary process; and named them as “spaceintel”, “serveintel” etc. These names became very popular in the industry, so popular that “Intel” choose to send a legal notice and long story short they were forced to change the name with the risk of erosion of significant brand equity.

  1. Get your serious documentation done seriously: and put all your agreements down in writing

Put all your important business agreements in writing. Oral agreements are usually difficult to enforce and leave you with no recourse for compensation or legal action. Make sure your contracts are well thought-out, drafted in your favor, and give you flexibility and protection.

The Online legal market has grown by leaps and bounds. There are many companies that are offering free legal documents online to entice the small business owner like one would offer a sample piece of chocolate at a candy shop. Many small businesses are taking the bait because let’s face it, money is tight. If you can incorporate your company, secure early-stage financing, and hire employees and compensate them with stock options by just filling out a few free documents online, why wouldn’t you?

Herein lays the problem: somewhere along the line you are going to need a professional’s legal judgment and advice. No law, no form, and certainly no small business can squeeze into a one-size-fits-all model.  Do-it-yourself in such cases could clearly backfire.

  1. Not clearly documenting partners’ rights and responsibilities: co-founder dispute is perhaps the single largest reason for small business failure

A live case; someone is running a manufacturing business where he has 3 more partners. One of the partners has started a competing business. He barely contributes his time to the business and still continues to take a share in the profits. They do not have a co-founders’ agreement that has a non-compete clause preventing partners from running a competing business. As a result, partners are unhappy. They want to kick out the guy running a competing business, but have no legal way to do it.

It is just a matter of time until they have a showdown and probably most will leave the business.

Do you have a co-founders’ agreement or some such written agreement that covers the rights and duties of the founders/promoters of the business? If not, this you might want to address AS OF YESTERDAY.

  1. Not keeping proper corporate records leading to NON-compliance

This is really irritating because as a small business you are struggling with employees, customer acquisition, the technology going live… mundane record keeping in the last thing on the mind of an entrepreneur. However improper record keeping can cause problems with the revenue guys, hamper your ability to raise equity capital, and result in personal liability. Yet small businesses are notorious for failing to keep the required corporate records. Failure to document meetings of the board of directors and shareholders, failure to record stock issuance, and failure to document stock transfers are common infractions of the guidelines that protect the status of a corporation.

  1. Ignorance of the law, esp. on the regulatory frontSmall business pushing the envelope and governments not up-to speed on fast changing environments could lead to risks on the regulatory front.

Thus online payments are at the mercy of RBI, carpooling websites which may be made illegal by the motor vehicle department of any state or the night food delivery service that can be harassed by the police. If you have not figured out the regulatory issues in your sector, you are probably not prepared for the worst that could happen to your business. Lots of new businesses such as Uber are facing regulatory heat at the moment after an Uber driver allegedly raped a woman in Delhi.

What next

Small business owners tend to think they are running the show in every aspect & that a legal advisory is just a waste of valuable funds; which often sounds right!
But is it actually right? Is your business free from all legal hassles? Can you foresee legal issues your small business might face? Can you handle those issues yourself? Do you seek legal advice after or before your business is in trouble? We therefore arrive at an age-old problem; An apple a day keeps the doctor away, is prevention better or cure?

We can’t answer these questions for you, however to re-iterate watch out for the above 5 areas and keep a small business friendly law firm / legal services provider close.


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August 19, 2015

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