Legal Risks for Businesses: Basic Legal Issues Every Entrepreneur Must Know
Law is the skeleton of every entrepreneurship. Every form of entrepreneurship, from its birth to its death and thereafter, has a non-severable link with the law. Laws establish guidelines for what companies can and cannot do, as well as certain things they must do. Law is a broad discipline with several fields that serves important functions in business.
The risk of non-compliance with law may result in businesses being sued, fined, or even facing criminal liabilities. It is therefore important to be in compliance with the law in all aspects of your business.
Here are four legal issues to get you started:
- Choose the right form of business.
Is your business set up as a partnership, LLC, sole proprietorship, or limited partnership? If you haven’t given this issue much thought, now is the time. It’ll make doing your future taxes a lot easier. It’s also important to understand tax laws so you can try to avoid audits and hefty fees. The key is to figure out which structure gives your business the most advantages to help you achieve your organizational and personal financial goals.
- Employment laws
In early days, entrepreneurs tended to have a more informal and casual relationship with employees. However, with the introduction of the Employment Act (02/2008), Maldivian law requires businesses to have a defined and written agreement with employees, identifying the scope of work required. Without clear agreements regarding rights and responsibilities, the employer-employee relationship may easily break down and lead to a dispute that could have easily been avoided.
- Intellectual property rights & Trademark protection
Usually, companies don’t think about protecting their trade secrets until an issue arises. Protect what’s important to your business, whether it’s intellectual property or other IP like trade secrets.
Maldives has no legislation in terms of Intellectual Property Rights. To circumvent this, there is sufficient trademark protection that has been offered by way of acquiring public recognition through cautionary notices. The protection of intellectual property can be sought by the publication of cautionary notices in newspapers and journals which have wide circulation in the markets. These cautionary notices are a warning to third parties against the use of such marks which may result in an infringement and to not continue with such use. Regardless of absence of IP rights legislation, common law can be applied to intellectual property disputes to resolve such issues.
- Clear written terms of purchase and sale
When your business is small, you may tend to skip formal terms of purchase and sale. However, as your business grows there is much to lose by not having formal terms. It doesn’t have to be complicated – even a simple agreement and corresponding invoices can keep you secured. You should also be wary of terms imprinted in the invoices you receive, or else you may end up paying hefty penalties. It is important to note that your silence regarding heavy penalty provisions in invoices can in some instances be implied as acceptance of such provisions.
While it is very common for small businesses to not have any processes regarding who can issue a PO or request services from a vendor, the absence of such processes can place the business at risk for fraud, self-dealing and embezzlement as the company grows. To protect your company, it is important to have a definite process and written agreements in place with vendors and consultants.
These are a few simple steps you can take to ensure that your business is protected. Disputes and litigation in court are bad for business as it takes away valuable time and resources from your business. To be successful in your business venture, it is important to know your rights and responsibilities as well as that of your employees. After all, compliance with the law is good for business. If nothing else, you will save having to pay hefty fees to pesky lawyers!