Unfortunately, there’s no faster way to ruin a business than to overlook a key law or customer complaint.
For example, look at what is happening with Facebook this week!
When you are as big as Facebook, you can afford tons of lawyers, thousands of people working on privacy and security, and work each and every day to ensure the odds of a data breach are minimized, but at the end of the day, you still need to make sure you have the proper protections on the business side not to wipe out your company.
In this post, I will be talking about something that is rarely talked about when you talk about business and entrepreneurship: agreements and legal after starting a business.
Disclaimer: I’m not a lawyer, please do your own research for the laws of your state and country for your business.
Important Agreements and Legal After Starting a Business
There are a number of pieces of information that are a must for you to have after starting a business.
The following are things you need to have in place after setting up your business to, at a minimum, protect you and your business from a basic liability standpoint.
- Your name (or business name), address, and contact information
- What information you’re collecting from them (name, email address, etc.)
- How you’re collecting their information, and what you’re going to use it for
- How you’re keeping their information safe
Terms and Conditions
I’m guessing you’ve checked a free terms and conditions check boxes in your history. These documents are used in case of a dispute between you and the business if necessary.
It’s possible no one will ever read your terms and conditions, but they will certainly be helpful if any issues arise with customers or clients.
If you are working with a business partner, you need to have a partnership agreement (if your business is structured as a partnership.)
Even if you are the best of friends and think nothing will ever go wrong in the future, it’s for your own good and protection.
A basic partnership agreement should talk about how the business is split equity-wise, who contributed what for capital, what the process for breaking up would be, governing law, etc.
This document is there for you to fail back on if there are any disagreements with your business partners – in a way, you could call it the internal rules for your business.
For LLC’s, and other businesses which are not structured as a partnership, you will have an operating agreement which defines a number of things which are important for your business legally.
This operating agreement will talk about how the business is split equity-wise, who contributed what for capital, how members will be paid, what the process for breaking up would be, etc.
Again, this document is there for you to fail back on if there are any disagreements with your business partners, a business partner wants to buy or sell some of his/her stake, governing law, etc.
Agreement with Contractors and Workers
Another great document you should have for your business is an agreement for working with contractors, workers, and other businesses.
Again, you need this documentation to protect yourself in the event that things do not go smoothly.
This agreement would have statements and clauses around responsibilities, term of work, payment for services, working conditions, governing law, etc.
My Experience with Agreements and Legal
As I described in my entrepreneurship story, I was taken to court because I didn’t do my due diligence before starting my business.
Since my business partner and his ex business partner didn’t quite cleanly wrap up their endeavors together, when I started, from day 1, I was at risk.
Fortunately, it has been resolved, and I’m unscathed, but it could have been a lot worse.
All of this could have been resolved much sooner with proper partnership documentation and communication.
There are reasons why, when you go to sign for a mortgage, there’s so much documentation to go through – it’s all to protect both parties in the event something is to go wrong.
Think about legal documentation as protection – it’s just like insurance, you don’t think you need it until your house roof gets hit by a mega hail storm!
With every post in this Wantrepreneur to Entrepreneur series, I will be providing you with a task for you to think about after finishing this post up.
Next, if you have a business partner (and aren’t in an LLC), make sure to draft up a partnership agreement in the next few days to make sure you are on the same page. You don’t want to get burned like I almost did.
Legal risk is a true risk which cannot be ignored. You may think you are protected, but one false step and all of a sudden, you are in court. Next thing you know, boom, your baby (your business) is gone.
Protection through the proper agreements and terms will go a long way and save you a lot of headache in the long run.
Everyone dreams of the millions, and no one talks about the legal considerations of business. Make sure to take care of these things upfront in order to not lose your millions once you get them!
Readers: have you ever had a disagreement with a customer or client? What was the result? Was there anything you could have done to make it go smoother?
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