Every startup needs a name, a location, a business structure, financing and at least one employee (or self-employed entrepreneur!). Each need involves different legal considerations. Here are 5 legal considerations that you should consider as a startup or a small business:
You will work hard to find a name that is unique to your business and expresses your service/product in a way that will attract customers.This name is important because it allows your business to protect its brand identity which, in turn, allows customer loyalty to build. The name(s) can be protected as a trademark. In Canada, without registering a trademark, your company will have protection as an unregistered trademark. Unregistered trademarks are only enforceable in your local region, have lessened rights and protections and may be overtaken by other companies that choose to register that trademark name. The federal agency responsible is the Trademarks Office in Gatineau, Quebec. It is prudent before launching any sort of media campaign (or investing in signs etc.) to check the Canadian Trademarks Database to make sure that the proposed trademark has not already been taken.
This includes both the text name and logo of the business.
Location, location, location! Unless you can operate from home (check local bylaws to ensure your use is not infringing the zoning for the area – signs, parking etc.) you will need to find a location suited to your business. This means entering into a commercial lease. Commercial leases are governed by different rules than residential leases and need to be carefully scrutinized. It is best to obtain legal assistance when reviewing the lease. Note that in a “net lease”, while base rent may be low (eg.$9 per sq. ft.), total rent charges may be quite high (eg.$28 per sq. ft.). Be sure you understand the exact costs before committing to a lease.
Corporation, Partnership, or Sole Proprietor?
The formal organization of your business will depend on a variety of factors: how many entrepreneurs are involved, the source(s) of your financing, your budget and your plans for the future. There is no legal requirement that the business be incorporated, and this step can be deferred until later. If more than one person is involved however, it is important to clarify your mutual rights and responsibilities and to protect the business from failure because of internal conflicts. For this purpose, a written partnership agreement is useful. Ask yourself the following questions before entering into a partnership:
- Who owns the IP of the business?
- How are financial responsibilities to be shared?
- What is the authority of each person in the day to day operation of the business?
- How are decisions to be made?
- Are any assets owned personally?
- What happens if the business fails? What if it is successful?
Loan Agreements and Guarantees
Many businesses begin with money from family, friends and personal savings.
It is important to enter into loan agreements with everyone who lends money to your business. The agreements should set out the principal, annual interest rate, and due date. This protects you, your family and your friends if the business succeeds, and if it fails. If you borrow from a financial institution, expect the need for a guarantor. Consider whether the person you will ask can actually afford to repay the loan, if your business is unable to do so.
If you have any employees you will have to comply with the employment legislation in your province. This will include minimum wage, hours of work, vacation, vacation pay, probation periods, termination notices etc. In addition to this, you must comply with PIPEDA for the protection of personal information of employees; tax legislation for the deduction and remittance of income taxes; and other laws with respect to pension and unemployment deductions. It is wise to invest in a good “Do-it-Yourself” employer’s accounting software package in order to get started.
The Future and Where It Lies
These legal considerations may sound overwhelming, but tackle each problem individually and get the professional advice you need. Once solved, your startup will have a good foundation for continued growth. Best of luck pursuing your dreams!
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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.