June 5, 2020 Last updated June 5th, 2020 104 Reads share

Why My First Business Failed and Why You Should Find a Lawyer

Image Credit: DepositPhotos

I have something in common with Bill Gates, Steve Jobs, Walt Disney, and Richard Branson, in that every one of us had a business that failed. Failure in business is actually way more common than many people realize, with over half of all startups not surviving past five years.

I worked extremely hard on my first business. I was doing everything I could think of to succeed, and for a few years, everything was great, until I had some legal issues that I didn’t know enough about. Eventually, I was left with no other choice but to admit defeat and close down.

I found out the hard way that when you’re starting your own business, getting legal advice should always be a precaution and not a reaction. A business attorney can provide vital assistance with things like copyright or trademark advice, zoning compliance, as well as contract law and filing lawsuits.

Despite the high percentage of businesses that do ultimately fail, remember that there are many successful ones that are successful. If you’re getting ready to launch a new business venture, here are the top 5 legal considerations you should discuss with your lawyer.

Business Structure

Establishing the right business structure is one of the most important decisions you’ll have to make. Each one will have an effect on many aspects of your business, from how it operates, to minimizing taxes and protecting your assets.

Sole trader: This structure is for businesses that are operated by only one person.

Partnership: When at least 2 people run a business together, it should be set up as a partnership. That way there’s no real separation between them when operating the business, with each partner acting on behalf of the others and sharing the profits.

Company: A company is a separate legal entity incorporated under the Corporations Act of 2001 which separates it from both its shareholders and its officers.

For further advice regarding the right choice, you should consider connecting with a business lawyer who can provide you with more individualized information for your business.

Creating A Solid Business Plan

When I first started my business, I decided that I didn’t need a business plan because I wasn’t seeking investment capital or bank loans. I couldn’t see any reason why I should spend my valuable time grinding through a 40-plus page document that I thought would ultimately sit in a drawer gathering dust. But on the road to business success, you really do need a map.

Your business plan should outline the reasons for starting the business, along with a planned timeline, and some clearly identifiable goals. A good plan adds structure to your initial idea, with things like market assumptions, product descriptions, distribution models, management requirements, and all the financial needs. A well-written business plan and a good business solicitor are the best ways to identify any possible legal hurdles for the future and ways you could to overcome them.

Family Business and Prenuptial Agreements

Australia currently has over two million small businesses operating in Australia. As that number increases over time, so does the number of divorces. These separations are difficult for most people to deal with, no matter how amicable, which can also negatively impact their business.

A pre-nuptial agreement is a legally binding financial arrangement that sets out exactly how assets are divided after a relationship breaks down. Most people aren’t aware that prenups can still be legally set in place at any time from before the vows have taken place right up until the divorce papers are signed.

Depending on how you view it, a pre-nuptial agreement is either a sensible way to protect the best interests of each person, or as my wife said, the outright rejection of love, romance, marriage, and trust. A lawyer who is well experienced in divorce in Australia will be able to help you draft a solid pre-nuptial agreement.

Registering Your Business

Once I had spent a lot of my time and effort on selecting the perfect business name and crafting my image, I wanted to stop any future competitors from taking advantage of it by launching cheaper imitations. I quickly learned that registering a trademark is not the same thing as registering a business.

Many small business owners incorrectly assume that registering the name of business provides all legal rights which stops anyone else from using it. But the only way to get exclusive legal rights to your business name is by registering it as a trademark. That’s why when most business owners decide to register a business name first, and then register it as a trademark. Ask your lawyer if they have any additional suggestions to protect your business and ideas.

Contracts

A well-drafted and legally binding contract is the only way to ensure all involved parties are literally on the same page from the very beginning. Unlike a handshake contract, which I now know is difficult to prove in court, contracts can safeguard all signatories from being taken advantage of in case there is a dispute.

A contract can be set up to provide assistance with any disputes that arise in the future with the inclusion of a dispute resolution clause. It may prevent any future disputes from proceeding further, or parties may legally be unable to issue a claim at all. Instead of relying on handshake agreements or napkin contracts, discuss your contract requirements with a legal professional.

The unfortunate demise of my first business taught me everything I needed for my second business to succeed. Being successful in business is less about an idea and more about the execution of it. If your idea is all you have, having a good lawyer working on your side is best before sharing the idea with anyone to raise capital, establish trade accounts, or hire some staff.

When it comes to getting legal advice, it always seems to be like a delicate balancing act between benefits and costs, especially during the early stages of new ventures when the cash flow is tight. Businesses are usually uniquely different too, so the only way you can be sure that all of your legal requirements are covered is by discussing it all with a good lawyer.  

businessman in conference room  -DepositPhotos

 

Felix Yim

Felix Yim

Felix is the founder of Society of Speed, an automotive journal covering the unique lifestyle of supercar owners. Alongside automotive journalism, Felix recently graduated from university with a finance degree and enjoys helping students and other young founders grow their projects.

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