You’ve got a great idea for a business. The best thing to do would be to get to dazzle the market with your master plan and start selling as soon as possible, right?
Well, not necessarily. While there are huge advantages to adopting the lean start-up model – where you test your product or service as early as possible in order to factor in improvements – a failure to cover off the necessarily legalities can cost you dearly.
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“You can over-legalise things, but unless you properly set up what you’re selling and how, you’re stuffed,” says Kim Mei-Li Dennis, CEO of Jungle, which specialises in legal solutions for innovative firms.
“It’s about prioritising and managing risk. One area I definitely wouldn’t scrounge on is client agreements, because you can end up losing money rather than making it.”
“People tend to start trading before details are worked out and it’s hard to change a pattern once it’s set. Things like payment schedules, the scope of work and who owns the intellectual property – these are all important, as is working out how you’ll part ways with a client.”
Dennis says that IP is another area that she sees start-ups make “so many mistakes” in.
“Start-ups think that by registering a business name they’ve protected their IP, when, in fact, it has nothing to do with IP,” she says.
“Another thing is searching the ASIC database for brands that are identical to yours. If there’s a brand that’s similar to yours or phonetically the same, you could still be in trouble. Also, if you’re planning worldwide domination, you need to factor in overseas businesses too.”
“Also, when you get a contractor in to do work for you, they own the IP they create. You don’t own the designs your graphic designer creates, technically speaking, just by paying them. They need to sign this across to you in writing.”
“There are templates you can use for this every time, but it’s something start-ups often overlook. This is an issue because IP is an asset to a business. When you look to sell the business, you could find you end up owning nothing of value within it.”
So how can you avoid common legal pitfalls in your sales, marketing, business development and HR? Dennis has drawn up a checklist of key legal considerations that start-ups need to think about before they look to expand in 2013.
Do you have plans for business growth?
You may require strategic advice and legal implementation on business growth strategies including franchising, distribution, licensing, forming strategic alliances and partnerships, entering into new markets, strategic business acquisitions, capital raising and systems development.
Dealing with clients
Do you sell services and/or products to clients?
You should have a client agreement that provides a description of the services and products and covers the scope of work, fees, intellectual property, termination and liability.
Do you develop or licence software or technology to your clients?
You may need a Development Agreement or Licence Agreement that provides a description of the software or technology and covers service level standards, support services, termination, liability and force majeure events. You may also need an Escrow Agreement.
Do you provide prospective clients with ideas or proposals?
You should have a Confidentiality Agreement to protect any ideas or information you provide before being retained.
Ideas and branding
Do you have an existing brand or product name, logo, tag line or slogan that you wish to protect?
You should obtain Trade Mark Registration of your name, logo, tag line or slogan. You may also rely on laws regarding misleading and deceptive conduct and passing off.
You should take steps to build and protect your reputation and actively enforce your legal rights.
Do you create new brands, product names, logos, tag lines or slogans?
You should conduct trademark and other searches to determine registrable and potential claims for misleading and deceptive conduct, passing off or trademark infringement.
You may also need Trade Mark Registration, Copyright Assignments and Licence Agreements.
Do you develop ideas and concepts that you wish to protect?
You should use a Confidentiality Agreement. You may also need advice on commercialisation of ideas and concepts.
To see all of Jungle Management’s essential sales and marketing legal tips, click here.