Business law

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

For the financial side of due diligence, your accountants and corporate finance advisers are best placed to help you. On the legal side, you need a really good businessperson who also knows the law. 

As a simple example, let’s say the business you’re interested in turns over £1 million a year and makes a nice profit. Sounds great, but how is that revenue generated? Does a large percentage come from a single customer? Or is the customer base broader than that? Knowing more about the financial details lets you weigh up the risks.

On the legal side, what do the company’s 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 the IP? Pay particularly close attention if the business doesn’t own the IP itself, and instead relies on IP it licenses from a third party. What does the agreement actually say?

Your solicitor can 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 longer, they really only have two options: close it or sell it.

Business law is complex, and that can make closing a business very expensive. Making employees redundant is time-consuming, and can involve large amounts for redundancy payments and professional fees.

Selling the business is easier, but if it’s 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.

Sometimes, a good answer is to find senior employees willing to consider a management buy-out, or MBO. While many MBOs involve a significant payment to acquire 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 even at £1, it’s not risk-free. The seller’s top priority is usually to draw a line under their legal risks. 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 undertake some level of financial and legal due diligence. You want to know what you’re getting into.

Everyone’s friends when you start a business together. (If you weren’t, would you have started the business together in the first place??)

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 or divorce.

UK business law makes creating a company simple.  A great number of companies are founded using using a default set of rules called the ‘model articles of association’. These model articles might be decent enough for a company with only one shareholder, but for anything else they can be anything other than ideal.

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 or employee, 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 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 don’t address your business and business law issues better. They’re just wordier.

They can also stop sales in their tracks. Unnecessarily complex wording can shake your customer’s trust, leaving them to wonder what they are really getting into.

By comparison, using concise, plain-language contracts with fair and balanced terms will build trust. And that can only help you close the deal.

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. 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). 

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 copyright 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 is the name ‘Nike’ itself.

No, many contracts are unwritten. With a few exceptions, oral contracts are just as enforceable as written ones. 

As an example, if you speak to a graphic designer to design your new logo, they give you a price and you tell them to go ahead, you’ve probably made an enforceable contract. Once they start the work, you are probably committed to pay them the full price once they deliver. Nothing’s written down. There’s no email trail. But the work you have agreed is still a legally binding contract.

Often, this works well. But supposing you get into a disagreement. How do you know what the deal was?  For example, who owns the logo – the designer or you?

You might be surprised to learn that, in law, your graphic designer will own the copyright in the logo even after you pay for it. Unless, of course, you have a written contract that says otherwise.