HERE’S WHY YOUR SMALL BUSINESS NEEDS A LAWYER
I am used to being asked the most complicated legal questions by people who know I am a lawyer.
“Barrister”, I detest that appellation by the way, “why did the President do what he did?” Do you think it was constitutionally right of him? “My friend just got arrested, he is in Alagbon at the moment, what do we do?” Lawyers reading this can identify with those distress calls and SOS requests, asking you to do the almost impossible.
In truth, it is not only when you get into trouble or you face a brick wall that you need the services of a legal practitioner. In fact, seeking legal advice could avert major disaster. Entrepreneurs who are struggling to build brands are faced with several challenges on a daily basis, particularly in a challenging business environment such as Nigeria. The level of uncertainty in our environment makes the use of professionals even more relevant. As one of my friends would say, “it is practically impossible to plan your day in this country”. When the road is not blocked at the instance of a notable dignitary, the taxes are increased arbitrarily or your application for a regulatory license that takes forever to be approved, with one needing to cajole some civil servant to get the documents moved from one dusty table to another. I am sure we can all identify with these challenges, small and medium enterprise founders, especially.
I understand that these SMEs typically start with one man or a few people with an idea, in a car boot or a room within the house serving a select clientele. The fact that a new business is exposed to both macro and micro economic challenges makes it necessary for governance structures to be put in place from the onset. It must be understood that a start-up is still a business, albeit a budding one.
The large conglomerates and fashion houses of today once started out as small businesses; therefore every decision taken by the promoter must be taken with the future in mind. As they say the future starts now.
Lawyers may not be your favourite set of people, possibly because their services are considered expensive or because you are not a fan of the wig and gown or because these set of professionals are seen as always screaming big words and make the seeming easy more complicated. I would like to say, not because I am a lawyer though, that your lawyer should be your best friend. For the doubting Thomas’ reading this I have listed a few reasons why you make your lawyer your buddy.
Incorporation- Lay a strong Legal Foundation
Yes, Incorporation! I know that the position of the law at the moment is that the services of a lawyer is not needed for incorporation, however experience shows that a memorandum and articles of association drafted by a lawyer is better than using a template.
Further, businesses should consider seeking the advice of a lawyer as to the choice of business structure.
I explained to the young lady that creating a brand takes more than just willing it into existence and declaring it to the world. Setting up a website and social media accounts for your venture can give the appearance of an official business. However, it’s a house built on sand without the proper registrations in place. Incorporation legitimizes one’s business. Nigerian company law basically recognizes three broad business organizations – Limited Liability Companies, Business Names and Incorporated Trustees (these will be explained in subsequent articles). Registration of businesses under the Act is carried out at The Corporate Affairs Commission (CAC).
Name approval prevents the use of names that are so similar to existing business or company names, as to confuse or mislead people, and it provides a record allowing the public to determine ownership of the company.
Sort out Your Business premises
When choosing premises for your business, it is important that you fully understand the terms of the lease. Ask questions such as, “Is the landlord likely to increase the rent? ”can the landlord increase the rent? If so, by how much, and how often? Will you find yourself paying ever-increasing service charges? Will you need Urban Planning permission for a change of use? Nobody wants to be served with a demolition notice hence the need to obtain necessary permits and licenses beforehand. One would need a lawyer’s input for this.
Trademarks and Patents – Protect Your Intellectual property
Intellectual property (IP) refers to ideas you create and legally own. Example of IP can include inventions, literary and artistic works, designs, symbols, names and images. Your solicitor can help you protect your designs from competitors who may want to steal your ideas. By owning your designs, you can make money from them by allowing other people/ companies to use them, or at a later date you could sell them to someone else.
Before investing your precious start-up resources and emotions in a brand, the most business savvy and legally sound investment you might make in the future of your company is to invest in a trademark. Without protection of ideas, businesses would not reap the full benefits of their inventions and maximize profits.
First Directors – Put a board Together
As organizations grow, in line with the entrepreneur’s vision, employees with the required skill and competence will be hired. Once this team expands, the founder will find himself/herself in need of some mentorship, introductions to business opportunities and constructive criticism of the financials cum operating performance.
These checks and balances come through the board of directors. This is particularly relevant when the promoter lacks managerial experience. Therefore, even before incorporation it is important to give some thought to who the directors of the company would be. Names should not be suggested casually, to minimize the complications of having to replace board members.
The investment in an experienced and committed board will repay itself many times over by guiding the company through challenges associated with start-ups. Please seek legal guidance when it comes to building a governance structure.
Negotiation is like a game of chess. Plan your moves in advance and anticipate what you will do in response to the other party’s moves. A background in law makes it easier to play the devil’s advocate. We all negotiate daily and there is no single best way to negotiate. However a businessman or woman cannot be worse off by bringing his or her lawyers to the table. The outcome of negotiation could be reduced into writing in an agreement. This agreement is best drafted by the lawyer who was part of the negotiation process.
Labour Laws – Issue Well-Drafted Employment Letters
Most employment disagreements are caused by badly drafted service contracts or dismissal procedures. Entrepreneurs should ensure that they issue well-drafted employment letters and contracts to minimize or eliminate labour disputes; setting out among other things, maximum hours of work, overtime rates, minimum periods of annual leave, notice of termination, rights and responsibilities of employers and workers employees in the event of retrenchments. These contracts should adhere to the labour law and it’s a lawyer’s training to ensure that they do.
Goods and services – Draw up Contracts with Suppliers and Wholesalers
Do not leave everything to trust. Documentation is key. Document as much as you can. When buying or selling goods and services for example; it is important to know your legal duties. What could contract terms mean for your business? What are the laws relating to product liability? What can you legally say in adverts and promotional materials? Beware that wordings in adverts can be held against you.
On the flip-side, please get your lawyer to review any contract before you sign it.
Raising finance and seeking Investors
The most important documents and contracts relevant to raising debt or equity finance are drawn up by lawyers. Be careful not to sign away your rights as the founder. Have you heard of a founder’s clause and pre-emptive rights? If you have not, please ask a corporate lawyer to explain these terms to you.
It is also important in corporate borrowing to review the loan agreement before signing.
Many promoters overlook the fine prints out of desperation. I often advise business owners to understand what they want out of a partnership before entering into one. A partnership or investment deal is similar to a marriage. A business partner should never be chosen out of sentiments. Shine your eyes ooh! Did I forget to mention that while you are viewing the transaction through your naked eyes, your solicitor will be probing through a magnifying glass or even a high-powered binoculars?
In wrapping up this piece, let us not forget that lawyers act as litigators and arbitrators. A good lawyer will do his best to reduce your company’s exposure to liability in the event of a dispute. I must however re-iterate the fact that efforts must be made to minimize such disputes. Prevention as they say is much better that cure. Lawyers are relevant in any business especially startups so as to ensure that the foundation of the business is Lawyers should be seen as partners to any business, partners who protect the business in dealings with investors, financial institutions, regulators, creditors, suppliers, competitors other businesses and the community as a whole.
Love them or hate them, you need lawyers to help you take your business to the next level. What are you waiting for? Please do not hesitate to consult one.
About the Author
Derin Fagbure is a Corporate lawyer with special interest in corporate governance. She is a Senior Associate in the Transaction and Business Support Practice of Esher and Makarios.
She is a graduate of Igbinedion University and has a Master’s Degree in Corporate Law from University College London. She is a member of the African Society of Crowdfunding. Her column” in black and white “which is published in Thisday Law discusses innovations in corporate governance and finance.
She is passionate about entrepreneurs and writes regularly on legal structures for SMEs through her brand “in black and white”. She has spoken at various fora and business summits on the importance of a legal structure towards ensuring business perpetuity. Derin is passionate about advising small businesses with a view to ensuring that they outlive their founders.
An active bar member, she currently serves as the Chairman of the Young Lawyers’ Forum of the NBA Lagos Branch.