by Kate Ritchie, Principal Lawyer and Trade Marks Attorney, Ethikate
If you are an entrepreneur trying to start a business, then you know that every decision is crucial and one small error can spell disaster. Unfortunately, in the exciting chaos that is the fledgling months of any enterprise, legal mistakes are easy to make. Most are minor and may be an “easy fix”. However, some can be extremely damaging and be the difference between your business’ success and failure.
If you are just starting out, the following are five costly mistakes to avoid, in order to protect your business long-term. If you are a seasoned business owner this information may be useful as a health check for your current business, or to keep in mind for any future initiatives that may be in the works.
Mistake 1: Not protecting your brand
It may sound simple enough, but in my experience with small business owners and start-up founders, brand protection is often where avoidable errors are made. These errors can severely undermine the sustainability of any business if they are not promptly rectified. Common mistakes include not registering trade marks, designs and patents as well as not having secure confidentiality agreements to protect trade secrets.
Protecting your brand and intellectual property is paramount. Your IP is one of your business’ most valuable and not to mention most profitable assets.
Mistake 2: Trade mark infringement
Perhaps the worst and potentially most expensive mistake you can make as a business owner is being unaware of what other trade mark registrations have already been granted to other parties. When you are starting a business, one of your first priorities must be to conduct a thorough brand clearance or better yet, engage a professional to do it for you.
You must ensure that the business name and logo that you intend to use is actually available and that you are not unknowingly committing a trade mark infringement. It is important to do this at the outset before launching your business and creating any corporate collateral.
Mistake 3: Forgetting about the fine print
I am sure you are familiar with the phrase “terms and conditions apply”, and there is a good reason, because terms and conditions are extremely important for protecting any business.
This mistake is twofold. As a business owner you can:
A. Care too little about the fine print in the documents you give to your customers to sign.
B. Care too little about the fine print in the documents given to you by other entities for you to sign.
Let’s start with the first point.
Clearly phrased terms and conditions governing your company’s policies are essential to prevent avoidable legal battles. Without them, you leave yourself open to litigation and the reputational and financial damage to your business that may result.
There is a reason “beware the fine print” is a popular cliche, you really do need to be aware. A lot of terms and conditions are buried in confusing and tedious fine print that can be difficult to decipher. Getting a legal professional to review contracts prior to signing them is the only way to guarantee that you know what you are signing. This is particularly important for small business. One of my clients lost almost $100,000 and his business because he failed to get the terms for a large transaction reviewed by a lawyer first.
Mistake 4: Incorrect business structure
Company structure is crucial not only for the way in which your business functions but also for its protection. Unfortunately, a lot of disputes arise due to improper business structure. It is important to get the structure right from the beginning as it will help you to determine any current and future risks, set goals for future growth and determine any legal and financial obligations you may have.
When deciding on a structure for your company you have a number of different choices. Are you a sole trader? Operating in partnership? Or, are you a company? Whatever structure you decide it is important to ensure your structure aligns with your short and long-term goals. Once decided, it is important to continually review this structure in terms of your current and foreseeable growth. This is crucial in order for you to accurately monitor your risk and personal liability, asset protection and tax implications and develop succession plans.
Mistake 5: Relying on the internet or advice from your mum/friends/neighbour
Just as a Dr Google diagnosis is often vitally flawed, Google Lawyer is no more reliable. However, business owners are still commonly turning to the internet to source and generate legal documentation. It may be cheap in the short term, but let me assure you, you get what you pay for. What’s more, you may not even need the documents you have paid for. Professionally drafted documents that are tailored to your business needs are an investment in your business future and they are the only documents that will protect your business long-term.
We are taught to think “mum knows best” but when it comes to legal advice, unless she is a qualified lawyer, she probably doesn’t. The same can be said for friends and colleagues, even if they have gone through the process themselves before. Their experience is based on a distinct set of circumstances and their legal needs will be different to yours. Remember, the law works in shades of grey, not black and white.
Investing in legal advice at the start of the process is infinitely better than seeking help once issues arise. Seeking legal advice after something goes wrong is always going to be expensive and stressful. It is a much safer and more economical business decision to risk manage and strategise with the help of a legal professional from the outset.
A similar version of this article appeared in Fairfax My Small Business and was published across The Age; The Sydney Morning Herald; WA Today; The Brisbane Times and The Canberra Times.
Ethikate offers a range of affordable packages specifically designed for startup founders and small businesses, including our $199 Initial Consult package. Starting a business? The Ek Legal Lab is a new online legal resource for startups that’s launching in late March. Register your interest and receive a FREE startup checklist.
About the Author: Kate Ritchie is a strategically focused Principal Lawyer and Trade Marks Attorney with both commercial and business services and legal experience. Kate has broad ranging competency in all aspects of legal services including intellectual property law, brand protection, commercial and business transactions, negotiation and alternative dispute resolution, internet law, privacy, competition and consumer law and sports law. Kate has worked with top-tier commercial law firms such as Clayton Utz and high profile companies such as Thiess Pty Ltd and Tatts Group. Kate founded Ethikate in 2014 with a passion for providing specialist advice and services in Intellectual Property Law, Trade Marks and Brand Protection Strategies, business and commercial law and entertainment and media law for startups, entrepreneurs and small to medium businesses.