Entrepreneurs tend to think of themselves as outside-the-box or creative thinkers. This thinking can translate into a fresh approach to an established market, creating a new demand for a product, or innovating in some other way. Any business can have legal issues or become entangled in litigation, but those who choose to try something new or innovate still need to be careful they don’t run into a variety of legal issues that commonly crop up for entrepreneurs as they conduct business, seek partnerships and generally operate a business.
Common legal disputes
Legal disputes come in many forms. Here are five reasons entrepreneurs find themselves in court:
- Breach of contract: Contracts are the foundation upon which a company conducts business and generates revenue. Contract breaches occur when one party signed the contract does not meet the agreement’s terms. It can be for reasons beyond their control, inept business practices or choosing not to honor the deal. A well-drafted contract with fair terms has the best chance of holding up in court. Entrepreneurs also need to ensure they are not violating exit agreements with past employers.
- Employment disputes: While rule-breaking can be suitable for innovation, it can be bad for managing people. Violating protected rights can lead to claims of harassment, wrongful termination, unfair hiring practices, or other lawsuits filed by employees. Consistent and detailed employee files with an employee handbook outlining rules and expectations can help entrepreneurs defend themselves in court.
- Partnership disputes: Not all partnerships work out. It can be a matter of differing priorities, visions for the company, clashes of personality, profit sharing, or even fraud.
- Intellectual property disputes: Entrepreneurs often leave another company to start their own. Even if it is not malicious or intentional, using a former employer’s intellectual property or proprietary information can lead to legal action. Entrepreneurs must also protect their IP assets by registering them and taking legal action against those who violate those legal protections.
- Securities litigation: Entrepreneurs raising capital need to comply with all applicable financial laws and provide accurate and transparent information to potential investors. Entrepreneurs can run into trouble if they are “overly optimistic” with their facts or figures.
Understanding the risks
Starting a new business involves a certain amount of risk. Recognizing those risks and the legal protections involved can help entrepreneurs minimize their risks and maximize their protections if others try to take advantage. Knowledgeable business law guidance is a crucial first step, but it is also essential to enforce legal agreements made in good faith.