Legal Essentials for Entrepreneurs

Written by Prabjit Chohan-Patel

As Dr Susanna Grech Deguara of Chetcuti Cauchi Associates says, starting a business can feel like going on a rollercoaster ride – one where the last thing on your mind generally is the associated legal implications. 

Yet the legal ramifications of starting a business cover a huge domain, including among other areas, compliance (data protection, environmental, regulatory etc), licensing, employment law, taxation, insurances, exit strategies (including mergers and acquisitions) and so on.

This article features succinct but important recommendations by four experts from Malta’s legal – and the SHE – community, addressing several other key legal aspects of operating one’s own business: company structures, agreements and protection of interests (eg. IP and dispute resolution precautions). 

Dr Daniela Azzopardi Bonanno, Themis Advocates (Founder, Advocate & Legal Consultant)

My key piece of advice, keeping in mind that I work in litigation and not corporate, is to put everything in writing even if it is just a simple follow-up email after a meeting. This way, you’ll always have everything on record and if the other party has understood things differently, this is the perfect opportunity to clarify without any repercussions. 

On the same lines, working arrangements/conditions have to be detailed in a proper contract that covers  legal matters such as intellectual property, confidentiality and competition clauses and methods of payments.

Ideally, companies should consider engaging legal counsel on a retainer basis as it means they can build a set monthly fee for legal advice into their budget, enabling them to run everything by their counsel in advance. This is usually more cost-effective and advantageous than only seeking legal advice and having to take legal action when things turn sour.    

Dr Lara Ferris, Ferris Legal (Independent Legal Professional – Commercial / Corporate / Regulatory)

One of the foremost tips at start-up phase is to consider the different legal vehicles or structures through which to run your business (eg. amongst others, sole trader, company or partnership entity). Despite the advantages of limited liability associated with company set ups, it is not always the most efficient or cost effective set up to start off with for small one-person operations. Personal circumstances, preferences as well as an appreciation of the different legal implications come into play.

Also, if you are joining forces with other business partners, be aware that a clear understanding breeds lasting relationships. I cannot stress enough the importance of thinking ahead to anticipate any matters that could create conflict or points of contention down the road. This also applies – even more so perhaps – to family businesses where emotions can be involved and tend to run high. Relationships change; some grow and evolve while others can unfortunately turn sour. 

Aside from choosing partners wisely, it is advisable to agree at the outset (and then establish in writing) the main terms you wish to have in place to govern your business relationship and how to deal with problematic situations throughout your business journey.  This can prove highly valuable in the event of challenging situations.  Reassuringly, however, this does not require you to get lost in the formalities and complexities of drafting lengthy agreements.   As long as you discuss and draw up key terms beforehand (respective contributions of time, focus and financing), clearly defining expectations and setting clear roles, responsibilities and duties, profit sharing arrangements, decision-taking, transfer of business interest, exit clauses etc, this is enough.  

Dr Susanna Grech Deguara, Chetcuti Cauchi Associates (Senior Associate, Intellectual Property Lawyer with an interest in technology and Start-ups)

Protect from early on.  Not all brand names are eligible for legal protection so one should consider legal requirements before investing time and energy in a brand name. Caution is also crucial in terms of being careful not to let your ideas out of the bag too soon. Having a holistic intellectual property strategy is not only essential for the protection of your start-up but also adds value.  Studies show that start-ups holding intellectual property are 10.2 times more likely to secure funding. 

Keep it Simple. Entrepreneurs are often known for their ‘outside the box’ thinking which drives them to create unique incentives or accommodate infrequent investor requests. However, this can sometimes lead to overly complex legal requirements. While there may be situations where complexity is needed, it typically ends up increasing legal costs. It is important for founders to be mindful of costs especially in the early stages. This is where having a knowledgeable startup lawyer can really make a difference in avoiding such pitfalls.

Dr Marylyn Hili, LL.M., (Intellectual Property Attorney, Malta and EU)

Your company’s intangible assets include your trademarks, designs, copyright and patents. Despite their absence of physical attributes, these assets contribute to a company’s value in ways that tend to be dramatically underestimated. The importance of prioritising the protection of your intellectual property at start-up stage cannot be emphasised enough. In the case of designs and patents, companies would lose their chance of protecting their rights if they expose their design or invention to the public before applying for registration. 

More often than not, companies are tempted to postpone the investment required to secure their trademarks – only to find out that while they waited, their brand name was taken by someone else. Consequently, this results in a costly process, embroiled in negotiations trying to establish an agreement or having to rebrand altogether. Similarly, start-ups who hire marketing agencies to assist with branding should also consult an intellectual property professional before shortlisting a name, to ensure its viability and chances of being registered as a trademark. In an ideal world, marketing agencies would work hand in hand with intellectual property consultants, yet this is almost never the case so it is the business owner’s responsibility to conduct the necessary checks. 

Here are some pointers to increase the likelihood of a successful trademark registration:

1. Choose a name or logo which is not descriptive of the goods and services you offer

2. Conduct a comprehensive search to identify any potential conflicts

3. Make sure you do not use any offensive content

4. Employ figurative and design elements to help make your mark more distinctive

5. Always seek professional advice. It is well worth it!*

*This article provided a brief overview.  It is essential you seek in-depth legal advice from a qualified professional based on your specific business circumstances (and particular industry).

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