Managing the day-to-day operations of a business can be challenging. It’s easy to see how legal preparations can take a back seat. Unfortunately, not having a solid legal foundation can be a fatal mistake for a business of any size. Investing in a proactive approach to legal protection can save you countless dollars in the future. Below are common legal business mistakes to look out for.
Choice of Business Structure
In Canada there are four main business structures; Sole Proprietorships, Partnerships, Joint Ventures, and Corporations. Each structure has unique tax, property and liability implications. Choosing the right structure based on your business and personal situation is critical. An example that highlights one of the differences between the structures is liability.
Sole Proprietorships are the simplest form of business. Nevertheless, one of their biggest disadvantages is the aspect of unlimited personal liability. This means that the owner of the business is exposing him or herself to be personally liable for any debts the business incurs. In contrast, a major benefit of the corporation structure is that it can exist independently from its incorporator, thereby shielding them from any personal liability. What about a partnership or joint venture? In Re Kucor Construction the Court held that only individuals and corporations are seen as distinct legal entities, a partnership does NOT exist as a legal entity distinct or separate from its partners and is not capable of holding title to property or mortgaging or granting security on property. In this case, the business structure of the parties played a major role in determining if the lawsuit would be successful.
Failing To Use Written Contracts
By law, the Courts in Canada may find verbal agreements binding; however it’s good practice to document your business relationships in writing. Depending on the size of the business, it’s common for relationships and agreements to arise naturally or without a formal contract. These relationships encompass communications between the business and customers, vendors, contractors and employees. Failing to keep comprehensive written records of contracts and agreements is a sure-fire way to expose your business to potentially costly litigation when a once friendly relationship goes south. Additionally, including a Non Disclosure Agreement in your contracts is a good way to confirm that the people you are working with will maintain confidentiality about your business.
Failing To Protect Your Intellectual Property
You have spent time and money making your business unique. Make sure you are building your brand for yourself and not anyone else. Failing to protect intellectual property through a patent, trademark or copyright means someone else may come and use your brand name, logo, work or design as his or her own. This is more commonplace than you would think, as Canadian coffee franchise Tim Horton’s recently discovered. A Tim House coffee shop was operating in South Korea with a logo strikingly similar to that of Tim Horton’s. Because they had protected their intellectual property, Tim Horton’s could now take legal steps to deal with the imposter. A lawyer, patent agent or trademark agent can help determine what type of protection is best suited for your particular needs.
Failing To Register You Business
Be sure to register your business early on in the process. Getting the appropriate business license will ensure you are operating legally in your region. Be sure you have registered for your business number, GST/HST, income tax, payroll and import/export accounts, if applicable.
Ignorance of the Law
Don’t be caught of guard. Make sure you are up to date and informed on current industry news, including relevant law. For example, Canada’s recent anti spam legislation (CASL) came into effect the summer of 2014 and is relevant to businesses that use any sort of electronic communication, which these days is a large majority. Consider environmental and zoning laws in your area and know how they apply to your business.
Additionally, don’t forget that as an employer you have regulatory standards to comply with. In Ontario, these can include the Workplace Health and Safety Act, Occupational Health and Safety Act, and the Human Rights Code. Do your research and know what applies to your industry and region.
Failing To Get Professional Advice
This list is a great place to start when protecting your business, however, it is not comprehensive. Hiring a lawyer who can provide tailored guidance for your specific business can ensure you are legally protected. As cliché as it sounds, an ounce of prevention is worth a pound of cure. The right lawyer who is familiar with your business can become a trusted source of guidance and advice as your business grows. Saving money by cutting corners on legal matters may seem like a great idea at first but can become a costly future mistake when forced to pay for fines, penalties or litigation.
This article should not be relied upon as legal advice - the comments may not be applicable to you and may not be up to date. If you have any questions, you should contact a lawyer.