The Dos and Don'ts of Starting a Side Business

While starting a side business can be exciting, it is critical that you take some proactive steps to avoid getting in trouble with your employer.

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By Romesh Hettiarachchi

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Running a business may seem exciting especially if that business is built around the things you are most passionate about. After all, who can say no to extra money?

However, running a business comes with risks risks that are greater if you want to run a successful side business while being employed. Here are some of the legal issues you may want to consider as you build your new enterprise.

Don't ignore your employment obligations

Your employer will likely have asked you to sign an employment agreement when you started your job. This employment agreement describes the legal obligations you owe to your employer while employed. The obligations stated in your employment agreement will dictate your ability to operate a side business and what you can and can't do while operating a side business.

Related: Starting a Side Business? Here Are 5 Steps to Avoid Getting Fired

Here are three restrictions you may find in your employment agreement and their implications on your ability to conduct a side business:

  1. Duty of loyalty. Your employment contract may state you owe a duty of loyalty to your employer a duty that generally prohibits employees from competing with their employer during employment. If you think your side business is marginally competitive with that of your employer, consider obtaining legal advice to assess and quantify such risks.
  2. Confidential information. In the course of your employment, your employer may trust you with access to its confidential information, the value of which is derived from being kept secret from the rest of the world. Don't use your employer's confidential information for the pursuit of your own business interests. Doing so is simply a recipe for an expensive lawsuit.
  3. Intellectual property. Through the course of your employment, you may discover an invention that you may want to monetize and exploit. Tread carefully! If you are hired to invent products for your employer, you employer may wish to assert ownership over the invention. This is another area where advice from a lawyer is crucial.

Don't build business using the assets of the employer

This may seem obvious, but you'd be surprised how many employees unintentionally use their employer's assets to run their side business. Here are three assets you should not use if you don't want to land in hot water:

  1. Laptop and tools. This is pretty obvious; don't use the assets provided by your employer to conduct your personal business. This includes any phone, laptop or other electronic device that your employer provides as well as any electronic software applications provided by your employer.
  2. Email. Many employees use the email address their company provides to conduct their personal business. Little do they know that this is a very risky personal and business practice. For most employers, the email address provided to employees is an asset belonging to the employer, which can be taken away at any time. So, if you are considering starting a side business, ensure all communications are through an email address that you have full control over.
  3. Time. If you are working remotely, employers have more challenges in overseeing your conduct than they would if you were working in their offices. You may think you have the flexibility to work on your side projects while completing your employment duties. Be careful in your assumptions: Some tech-savvy employers have the capacity to supervise employees remotely.

Related: 3 Agreement Types Every Entrepreneur Needs

Do invest in building an advisory team

The success of your business will depend on your ability to make informed business decisions. However, you can't be expected to know everything. You need to have an advisory team that can guide your decision-making on the issues most critical to your business. Here are three team members we recommend our clients include on their advisory team:

  1. Banker. One of the first things any new business owners should do is open up a bank account solely for the new business. This offers an opportunity to get introduced to a business advisor at your local bank a relationship you should rely on as you grow your business.
  2. Business lawyer. Want to avoid getting into trouble with your employer because of your side business? Your business lawyer will play a key role in both identifying and minimizing these risks while also protecting your broader business interests as you grow your company.
  3. Accountant or bookkeeper. The success of your business will also depend on your understanding of the financials underlying your business model. Your accountant can help strengthen your understanding as well as analyze the financial data of your business.

Related: 8 Steps to Creating an Effective Advisory Board

In short, no matter what business you're planning on starting up, invest a little time and energy to make sure you do not run into any trouble with your employer and get help from people who know what they're doing.

Romesh Hettiarachchi

Entrepreneur Leadership Network Contributor

Commercial Lawyer

Leveraging his experience in business, law and technology, Romesh Hettiarachchi helps entrepreneurs solve problems, minimize risks and adapt their business to the needs of the digital economy. Romesh provides legal services to business owners in the Greater Toronto Area.

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