Launching and growing your venture should be an exciting process. However, many entrepreneurs forget that, with the high esteem of running your own business and building a brand, so too comes the increased risk of legal action.
Unfortunately, some falsely believe this is unlikely to happen. The reality is that in business, disputes are commonplace and almost inevitable.
Legal or even court action can sometimes occur out of the blue, and if you are unprepared, it can hurt you both financially and reputationally.
In this article, we look at everything you should know about legal and court action to help protect you and your business.
Here goes…
Prevention
The first step in protecting yourself and your venture is prevention. You must ensure you have signed contracts and terms and conditions for all your dealings with all clients of any kind.
Be aware that there is a difference between yourself as an individual and as a founder or owner of a corporate entity.
Ensure you keep your personal dealings separate from your business, so if someone does try to sue, they are suing your company, not you as an individual.
Setting up a limited company in the UK or an LLC in the US is the easiest and cheapest way to do this. Of course, you should also ensure you are legally compliant for the industry you operate in.
Read our article on using our Pop Up World – Company Formation App here:
Be aware that setting up a corporate entity will not protect you if you are fraudulent or carry out criminal activity.
You should run your business in a clear, ethical and fair manner so you can avoid misunderstandings and disputes in the first place. This is not a nice-to-have; it is an essential.
On the personal side, ensure you conduct yourself in a professional way at all times. Be aware that building a brand means as a founder, you will be placed under scrutiny, whether you are aware of it or not.
In the social media age we live in, one negative post by a disgruntled customer, employee or even an ‘old flame’ could lead to serious repercussions for your venture.
You should understand that in many jurisdictions, just your word alone could be sufficient to bind you into a ‘contract’ under certain conditions. So avoid making promises you can’t keep.
Read this article here on whether a handshake is a binding agreement:
The cheapest and easiest way to protect yourself is to avoid drama in the first place and document everything.
Read this article on forming a company here:
Read this article on building a personal brand:
Needless to say, never threaten legal action during any negotiation phase just for the sake of it. Doing so is likely to ruin any opportunity of movement from the other side.
Once you have soured the relationship, there is often very little you can do to bring things back.
It’s perfectly valid to state your intentions to take things further if negotiations break down or there is no communication from the other party.
But avoid using legal threats as a tactic; they might just call your bluff.
Taking Action – Warning Signs
Unfortunately, despite all the prevention strategies in the world, it may be essential that you take action on an individual or company that has violated your rights.
Violation of your rights can occur in many ways, but the usual suspects are:
- Non-payment of invoices
- Breaches of contract or unclear deliverables
- Intellectual Property disputes
- Personnel issues such as harassment, discrimination, or performance disputes
- Compliance or regulatory issues
The first thing to do before taking any kind of legal action is to communicate with the entity concerned.
Trying to resolve the issue prior to legal action is not only cheaper, but it will save you so much of your time.
Court action can take months, even years, so think carefully before you go down the path of legal action.
Be aware that even if you have a strong case, the outcome will be based on the “balance of probabilities”. In other words, you will have to convince the judge 51% to 49% in your favour to win the case.
Unfortunately, your defendant has the same odds, so don’t assume the odds are stacked in your favour.
The takeaway here is to talk to the other party first and try to negotiate some kind of agreement. In many jurisdictions, dispute resolution or mediation are mandatory anyway.
Ensure you keep accurate records of everything and keep everything in writing rather than lengthy phone conversations. Email communication is probably the best.
You should remain calm and keep emotion out of the negotiation process.
Trying to negotiate or mediate will stand you in good stead should you need to proceed to legal action because it shows you tried everything to resolve the issue prior to going to court.
Read this article on negotiating in business:
Unavoidable Action
Despite your best efforts, further action may be unavoidable. The other party may decide to ignore your requests for negotiation, or they could be headstrong on dragging you through the legal process regardless.
Individuals are fully aware that the legal process is expensive, so vindictive court action is not unheard of, especially if your personal brand and business are making traction in the marketplace.
Be aware that lawsuits are often used in business to retain market share and dominance in the market, so do not be surprised if you are making waves in your industry of choice, you are suddenly hit with a lawsuit.
When this happens to you, ensure you have documented all your communications with the other party and employ a suitable lawyer regulated in the specific field of your business.
Your lawyer will have to follow “pre-action protocol” (UK), a series of steps that need to be carried out before legal proceedings can take place. In the US, each state will have its own set of rules to follow before court action can take place or the Rules of Civil Procedure.
One of these steps should include a final warning to the defendant before court action takes place.
If you are being sued, in most jurisdictions, you should receive a warning prior to any court action, or the claim could be invalid.
Read this article on how entrepreneur, Graham Jules won a trade mark dispute with a multi-billion dollar media company, Marvel and DC Entertainment:
Insurance
Something all entrepreneurs should consider, bearing in mind the cost of legal action, is insurance. In the US, costs can be particularly expensive even prior to court hearings.
Entrepreneurs often underestimate the value of insurance in preventing or absorbing the cost of legal claims.
Here are some insurance options that should be considered:
UK
- Employer’s Liability (required for most companies)
- Professional Indemnity Insurance
- Public Liability Insurance
- Cyber Insurance
- Directors and Officers (D&O) cover
US
- General Liability Insurance
- Professional Liability (Errors & Omissions)
- Employment Practices Liability Insurance (EPLI)
- Cyber Liability
- D&O Coverage
Legal action can cost tens or hundreds of thousands, so having appropriate insurance is a non-negotiable.
Read this article on why entrepreneurs should consider insurance:
When to Seek Legal Advice
Entrepreneurs often delay involving a solicitor or attorney due to cost concerns. However, early legal advice frequently saves more money than it costs, especially when dealing with employment issues, contract breaches, or regulatory matters.
Ensure you seek advice immediately once you see the warning signs.
Seeking advice doesn’t mean you need to act right away, and many legal professionals give 30-minute free consultations.
Set in your mind early on what your options are before things escalate.
Final thoughts
Unfortunately, the threat of legal and court action is almost inevitable. As a founder of a business, it is your duty to ensure that you prevent as much of the associated time and stress associated with legal and court action before it happens.
Setting up a corporate structure that protects yourself as an individual from lawsuits is a key element, as is having high business and individual ethics to prevent disagreements in the first instance.
Consider taking out legal insurance to give an extra layer of protection.
Unfortunately, sometimes legal and court action are unavoidable, in which case you should ensure you have all the necessary agreements in place and that you document all communications with the other party.
Finally, before going down the legal route, be sure to communicate with the other party to reach a settlement or to find a resolution to the issue.
If all else fails, you may have no choice but to go down the legal route. If that is the case, ensure that you have the right representation who fully understands your area of business.
Good luck!
This article is not legal advice; you should seek advice from a qualified lawyer in your jurisdiction who will be able to advise on your individual circumstances.
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***Disclaimer: This article is not legal or financial advice and is given for informational and entertainment purposes only. Readers should conduct their own research and not invest more than they can afford to lose. Crypto is extremely volatile, and as such can drop in value considerably without notice. Pop Up World has a global presence and is not specifically targeting any jurisdiction with its content. Any crypto references are not intended for UK businesses or consumers. You should always seek legal advice to understand if the use or investment in crypto is allowed in your jurisdiction.
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