You’re probably sick and tired of hearing the “P” word; i.e. pandemic. It continues to ravage the globe and, despite aggressive vaccination drives and public health campaigns, appears set to remain with us for a little bit longer. Regrettably, the pandemic has caused significant economic fall-out with lots of persons losing their regular 9-5 jobs. Others, who may not have lost jobs, have still faced decreased earnings and reduced working hours.
Yet, despite the hardships, many persons have found entrepreneurial opportunities which they have used to generate additional revenue to supplement, or even replace, their usual income. Whether born out of necessity, or out of a desire to control your own future, you may be wondering how you can embark on an entrepreneurial journey of your own.
As a prospective business there are several legal factors you may wish to consider, to ensure that the journey you take is not one destined for disaster.
Protecting the idea
All businesses start with an idea. You may need to share your ideas with others to test whether the idea can work, to see whether you can obtain financing, or to gain a business partner. A Non-Disclosure/Confidentiality Agreement, between yourself and anyone who you share your ideas with, is something that you may wish to consider utilizing. This agreement would prohibit the person with whom you shared your secret, from sharing that information with anyone. The risk of having an unscrupulous person take your idea and use it, without giving you compensation, is far too great to not guard yourself against the possibility.
The right business structure
Once you start doing business, you will likely be conducting activities such as applying for licenses, opening bank accounts, signing contracts and advertising. You will need to have a legal structure for the business you are running. Two of the more popular business structures are doing business under a registered business name and doing business through a limited liability company.
Registration of a business name provides you with a certificate which indicates your registered business name and a business registration number. With it you will be able to open a bank account and transact in the name of your business. Business names can be attractive especially in comparison to companies as there are a lot fewer formalities in the organisation of the business, as well as an absence of regulation, more privacy and lower set up costs. Further, the owner of a business name reaps all the rewards of the business personally.
It is not without its disadvantages, however. There is limited scope for raising money due to the individualized ownership structure of the business. Initial funding would likely be from personal funds and most additional funding would likely have to be raised by taking loans. Importantly, the owner of the business name is personally liable for the debts of the business and, if unpaid, their personal assets would be at risk of being used to settle their business’ obligations.
In contrast, incorporating a company will protect you from personal liability in the event that the business faces a lawsuit or becomes liable to pay a debt.
It is also an attractive structure for raising money as having a company will allow you to take on investors by selling shares in the company. Investors are also more likely to view the business in a better light if it is incorporated and possesses a strong corporate framework.
Disadvantages of a company include higher fees, more regulations, more paperwork and less privacy.
Doing business with others
In this particular economic climate, you may find it more beneficial to join forces with other individuals or companies in order to achieve the business idea.
This collaborative approach can be attractive especially for persons who wish to conserve their financial resources or who wish to utilize specific skillsets of others. However, it should be properly structured in order to protect your interests and to ensure that the business is conducted with certainty and in accordance with previously set parameters.
This joint approach can be formalized through a variety of ways. Two of the more popular are Partnership Agreements and Joint Venture Agreements. The choice between the two is based on how you wish to carry on the business. If you wish to share liability and decision-making power, you should form a partnership. However, if you do not wish to share liability and don’t wish each party to be able to bind each other, you would likely want to enter into a Joint Venture Agreement.
There is light at the end of the tunnel. The human race has overcome every difficult situation we have been faced with and this will be no different. How you emerge from the pandemic can be positively shaped by the entrepreneurial steps you take to secure your future and the future of your loved ones. With the right legal framework, you are one step closer to achieving your entrepreneurial goals, even in a pandemic.
Disclaimer: This article is for general information purposes only. It is not, nor should it be construed or relied on as, individual legal advice.