Top Five Legal Basics For Business Owners

By: Gwen Kui

As a business owner, you may need to wear many hats and have knowledge in a wide range of subject matters. To help your business to continue to grow, it’s helpful to be aware of basic legal issues. Below is an overview of five common legal issues that business owners face.

1) What to be aware of when drafting business contracts.

Overall structure of a valid contract.

The three basic building blocks of a valid contract are offer, acceptance, and consideration (the parties exchanging something of value). On top of these basic elements, there should be supporting provisions that help to ensure proper performance of the contract.

For example, when Bob agrees to paint Melissa’s house and Melissa agrees to provide Bob with $500 in exchange for his services, the parties have formed a contract. To clarify expectations and deal with potential disruptions, the contract should further address unanswered issues, such as the timeline of the painting service, painting standards, remedies, and dispute resolution.

Include practical remedies.

Business owners may spend a substantial amount of time drafting their favorable terms but leave the remedies provisions vague or blank. The misassumption may be that as long as the favorable terms are written down on paper, one’s position is well-protected.

If there are no clear and practical remedies and a breach occurs, the only “remedies” at that point may be unpleasant email exchanges or litigation in court. Litigation is expensive and time-consuming, so it is likely not a viable option for a substantial number of business owners.

Be aware of ambiguous terms.

When a word or a sentence can have two or more reasonable meanings, there is ambiguity. To avoid ambiguity and help to prevent litigation, contracts should be drafted with care.

For instance, if the contract involves international entities, the “dollar sign” may have different meanings to different parties. Ambiguity can also be created by modifier and punctuation placement.

[Related: Ten Legal Mistakes to Avoid as an Entrepreneur]

2) What are the basic elements of an employee handbook?Location of employees.

The employee handbook needs to comply with relevant federal, state, and local laws. As a result, one of the first things that an employer needs to consider is the locations of its employees. If the business has employees in different states, the handbook will need to cover different state laws.

Updates in law.

Periodically, there will be updates in federal, state, and local laws. The employee handbook should be updated to reflect the updates in the law.

At-will employment status.

The at-will employment status is likely important for many business owners and it is common practice to reiterate it in employee handbooks. To protect the at-will status, the handbook should be worded in a way that does not create an unintentional implied contract, changing the at-will status. At-will employment means that the employer or the employee may terminate the employment relationship for any reason at any time, with or without notice.

3) How to protect your intellectual property.

The three most common types of intellectual property (“IP”) are trademark, copyright, and patent. They often protect different aspects of one’s business.

Trademarks protect brands and their main function is to identify the seller of the product or service. Copyright protects creative works, such as paintings, books, and songs. Lastly, patents protect inventions.

[Related: The 8 Most Expensive Legal Mistakes Entrepreneurs Make]

4) What are the benefits of obtaining a trademark registration?

Business owners may put off registering their trademarks until their businesses become much more established. However, delaying registration exposes businesses to trademark infringement risks. Trademark infringement can in turn lead to mandatory rebranding, which disrupts business operations and is expensive.

Trademark infringement can occur in two main circumstances. First, when a business uses the identical trademark as someone else on the same or similar products. Second, which is much more common, is when a business uses a confusingly similar trademark as someone else on the same or similar products.

To find out if identical or similar trademarks already exist, you will need to search in the federal, state, and common law trademark databases. These searches are conducted during the registration process. Without going through this process, a business owner would not be able to know what trademarks already exist and could be unknowingly infringing upon someone else’s trademark rights.

5) What is IP license and assignment and why is it important?

It’s important to understand the difference between the terms “license” and “assignment” if you are giving away or obtaining intellectual property rights.

In a license, the owner retains ownership and only gives another the permission to temporarily use its IP. In an assignment, however, the owner permanently gives away its ownership rights. The difference is similar to renting (license) versus selling (assignment) a house.

Copyright assignment is a common document needed by business owners. This is because copyrights are generally owned by the person who actually created the work. For instance, if a contractor creates a logo for a business owner, the contractor remains the copyright owner (even if the business owner has already paid for the work). The underlying copyright rights do not transfer automatically; a written copyright assignment agreement is needed.

[Related: Getting Past Stereotypes to Find a Lawyer You Love]

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Gwen Kui provides general business and trademark/copyright law services, particularly for businesses in the health/wellness and music/art industries.