Start With a Closing Mindset

Legal compliance can often be a foreign language for first-time entrepreneurs. Here are the legal ins and outs you need to know before getting ready to launch.

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Working closely with start-ups and entrepreneurs, we have found that there’s a gap between business savvy and understanding the areas that your start-up should be compliant in. It costs substantially less at the stage of incorporation to get your house in order.

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We call it starting with a closing mindset, rather than needing to rectify crucial areas of your business at a later stage.  

Here are the five key areas of law that require your immediate compliance prior to trading.

1.  Don’t build your house on sandy land

It’s critical to ensure that there is a complete separation between your business and your personal assets. This requires that you incorporate the correct type of entity to best serve your end goal.

If you are ultimately looking for an investor, or to obtain funding under the banner of black economic empowerment, you need to structure your entity correctly.  Have a shareholders' agreement and a memorandum of incorporation in place.

If your business has more than one person, have you considered the importance of lock-up provisions, borrowing, and voting rights — to name just a few?

2.  Own it

Every business, however varied, carries intellectual property. Pause for a moment and think about it — your selling line, your logo, your company name. Your intellectual property must be protected.

You must ensure that you retain full ownership of the intellectual property. This is necessary for the operation and success of your business. Two other key and equally important components are confidentiality agreements and proper service agreements.

Your strategy, your vision, your business plan — these are confidential.  Properly worded service agreements will ensure that key customer and vendor relationships become long lasting. Often entrepreneurs, excited by the opportunity presented, gloss over these terms.

3.  Fine-tuning the guitar

Have you ever thought about the sound a guitar makes when out of tune — not great! Similarly, once you have built your house and ensured your ownership rights, a few other trigger points become important.

  • Tax structures and compliance:  VAT, annual returns and leniencies afforded to start-ups are aspects you should seek professional advice on.
  • BEE investment:  Investment and grants offered to historically disadvantaged groups could prove worthwhile. However, your structure should be incorporated with this in mind to make provision for such an investment.
  • Employment:  Your time is the most valuable asset, so it makes sense to employ people to assist. Employees have access to your proprietary information. Key employees may be well positioned to compete with you. Comprehensive employment contracts, with retention clauses and non-compete covenants, are critical to ensuring the effective use of your time while the business is assisted by the hands of people you can trust.

Maybe the type of work you require can be done by a contractor or an employee for a fixed period. These require specific types of employment contracts.  Also, from the day you employ your first employee, you are required to comply with statutory contribution provisions in a number of pieces of legislation.

Sherisa Rajah and Paul Fouche

Written By

Sherisa Rajah and Paul Fouche are directors at Fasken" rel="nofollow" target="_blank">Fasken, a law firm specialising in business law and helping businesses to grow.