Business law

As with most things commercial, you get what you pay for. And with a business you really do need to know what state it’s in before you buy. 

In business, the basic rule is still ‘buyer beware’. Due diligence is all about becoming aware.

There’s the whole financial side of due diligence, and your accountant is the best one to help you there, but to give you an idea of what they’ll be looking for let’s take a hypothetical case study. 

Say the business you’re interested in turns over £10 million a year. Sounds great, but how is that revenue generated? Does a large percentage come from a single customer? Or is it the customer base broader than that? You’d want to know this before you buy so you can assess the risks.

You should also look at the legal foundations of the business. What do their customer and supplier contracts look like? Would a change of ownership threaten any of those relationships? What about employee contracts? Do all staff have one, and what do they contain?

Does this business rely on intellectual property to operate? If so, who owns that IP? Pay particularly close attention if the IP is licensed to the business. What does the agreement actually say? (More about intellectual property in this FAQ.)

Your lawyer should create a due diligence questionnaire for the seller to complete. It can be as long or as short as you want, and we’ll help you decide what level of due diligence matches your risk tolerance and budget.

It depends on how you look at it.

If your employer doesn’t want to run their business any more they really only have two options: close it or sell it.

Closing a business usually involves significant expense. Making employees redundant is time-consuming, and can involve large amounts for redundancy payments and professional fees.

Selling the business is easier. However, if the business is struggling buyers might be hard to find. It could be a lot cheaper to sell it for a low price, or even give it away, instead of closing it.

The owner will look within the business for senior employees who might consider a management buy-out, or MBO. While many MBOs involve a significant payment for the company, some take place for literally £1 because the owner’s priority is to move on.

Buying out your employer can be an excellent opportunity, but it’s not risk-free. The seller’s top priority will be to draw a line under their legal risks. The existing directors will probably resign as part of the sale process, and the legal responsibility for the business will pass to the new directors straight away.

Whether the asking price is £1 or £1 million, you should perform detailed financial and legal due diligence. Even if you can afford to lose the purchase price, you want to know what you’re getting into. Otherwise, you might find yourself owning an insolvent company and cleaning up someone else’s problems for free.

Everyone’s friends when you start a business together. (If you weren’t, you probably wouldn’t have started the business together, right?)

Sadly, things can change:

• Friends can fall out.
  
• Goals and priorities that were aligned at first can diverge later.
• Unplanned events can intervene: disability, death, divorce.

Absolutely. If you’re confident the template does what you need it to do, and you’re happy to put your brand on it and give it to a customer, great!

However, even the best templates are only a starting point. You need to adjust them to how your business and your products work, and how you want to run your customer relationships.

Try downloading a free customer or employment contract template from the web. As you read it, ask yourself:

• Do we speak to our customers like this?
  
• Is this the tone we want to set for our relationship with staff?
• Does it cover what truly relevant to our business?
  
• Should it really be this long?

Most of the time, long and legalistic contracts aren’t better. They’re just wordier.

They can also stop sales in their tracks if the customer wonders if you are trying to pull the wool over their eyes.

Concise plain language contract templates with fair and balanced terms build trust and win more sales because clients can read them and understand them the first time.

At Plain English Law, we love creating great contract templates for our clients.

The best compliment we’ve ever received? “This doesn’t even look like anything a lawyer would write.”

Amen!

In the UK and Canada the key IP categories are copyright, trademark, patent, registered (or industrial) design, and trade secrets.

Copyright

This is literally the right to copy something, and to do other things such as adapt, perform, display, and translate the thing.

Copyright is automatically created when you produces a piece of writing, artwork, or a sound recording. In a business context, you can include written materials along with drawings, illustrations, graphics, logos, videos, and other design-based artwork. 

If you design a new logo, for example, the graphic is covered by copyright. (How you use the graphic might also be covered by trade mark – see below). Copyright also applies to books, pamphlets, articles, blog posts, and so on. When you own copyright in something, you have the exclusive right to use that thing. That means you can stop others from using it.

Software code is covered by copyright because it’s a series of words in a specific order that together convey meaning. That makes it a literary work, believe it or not.

It’s important to understand what copyright does and does not protect. The ideas expressed in copyrighted material are not protected. Instead, copyright protects the original way in which those ideas are expressed. So the specific phrasing in a piece of writing or a song, a unique branding interpretation, an architect’s drawings, or a snippet of code can attract copyright. The thinking, imagination, and initial creativity that lies behind them cannot.

Trade mark

A trade mark is a marking on an item or service showing who created the item. It has to be distinctive, so that the public can tell your creations from everyone else’s by looking at the mark.

We see trade marks every day. They can be graphical, or they can incorporate words. For example, Nike’s iconic ‘swoosh’ is a trade mark. So are their tagline ‘just do it’ and the name ‘Nike’ itself.

Most commercial contracts have something to say about IP – who owns it, and what each party can use it for.

Too often, these clauses are written unfairly, or the company you are dealing with has deployed the wrong contract template. Sometimes it doesn’t really matter. Other times, the consequences can be unpleasant.

Imagine you hire a contractor to design or build something for you. Then you discover you have to pay an extra licence fee in order to use it. Why? Because the contract you signed says they own all the IP.

Signing a contract to do work for a larger company? Check those IP clauses first. You might need to adjust the clauses (or adjust your price!)

No. Not all contracts are written. Say you’re a graphic designer and somebody phones up and says ‘please design me a logo’. You say, ‘no problem — that’ll be £1,000’, and they say, ‘go ahead’. 

Nothing’s written down. There’s no email trail. But the work you have agreed is still a legally binding contract.

Most of the time, all will go well. But supposing you get into a disagreement. How do you know what the deal was?  For example, who owns the logo?

You might be surprised to learn that, in law, your graphic designer will own the copyright over the logo. Were they supposed to transfer the copyright to you for that £1,000? Or is that going to cost extra?