Protecting your investment – five top tips for entrepreneur’s from a corporate lawyer
So you’ve got a great idea; one that revolutionises a market (or, maybe, even the world!); but what about protecting it. I advise businesses from when they first start to when time has come to sell, including when they get investment along the way. If you’re planning to raise funds or sell one day, thinking about what investors or buyers will ask you before they hand over their cash will save you time and money later and, at the same time, help you plan for the future.
1. Protect your financial (or time) investment
Investors protect themselves. Buyers of businesses protect themselves. Founders of business, all too often, do not. Shareholders’ Agreement’s or bespoke articles of association for a business protect all the shareholders, avoiding expensive and time consuming disputes later. Not only that, but the conversations you’ll have when drafting them will help you plan the business and understand what each shareholder expects.
2. Protect your Intellectual Property
Registering trademarks and patents (if you can) is an important step, but investors or buyers will expect you to protect at all intellectual property your business generates.
Say you’re developing software, who is developing it? Do you know who owns the rights in it? Generally, you can only protect the expression of an idea; not the idea itself. Where an external contractor develops your idea, they may own the rights in the work! Working out who owns the rights and putting in place clearly drafted contracts to give your business the rights it needs will protect the value of your idea.
Don’t forget confidentiality agreements (sometimes called non-disclosure agreements) either. Some of the most commercial successful ideas are not protected by intellectual property. The formula for Coca-Cola is a secret, it has never been protected in any other way.
3. Secure your key people
For many businesses, their people are their key asset. Investors and buyers will look at the contracts you have with them to make sure the business is adequately protected. In particular, they will want to know that they cannot leave at short notice and, if they do leave, that they cannot take their expertise elsewhere and compete with your business. If your contracts are not up to scratch, it could affect the value of your business.
4. Limit your liability
The first step is to form a company. However, that will only limit your liability, not the company’s to its customers and suppliers. If your business sells something (it is not much of business if it doesn’t!) it will have some liability for what it does. Properly drafted and implemented agreements can reduce the company’s liability, if things do not go to plan and will put investors and buyers minds at ease that there is not a big claim around the corner.
5. Get great professional advice
Great professional advice really can take your business to the next level. The best advice comes from a team of trusted professionals working together. We work closely with accountants, tax advisers, financial planners and other advisers, to give them joined up advice for both their business and them.