Issues to consider before starting a new business

Twenty years from now you will be more disappointed by the things you did not do rather than by the things you did do. So throw off the bowlines. Sail away from the safe harbour.

Catch the trade winds in your sails. Explore. Dream. Discover,” - Mark Twain, Author.

“There will come a time when big opportunities will be presented to you and you have got to be in a position to take advantage of them.”- Sam Walton Founder of Wal-Mart Inc.

Both of these quotes are from famous entrepreneurs and authors describing the characteristics of entrepreneurs.

Entrepreneurs are innovative people who are able to identify business opportunities where most others are not able to.

They see the glass as half full rather than half empty.

They go a step further in risk taking and are willing to bear the risk associated with the venture, obviously anticipating a high return.

They are also very persistent people despite numerous failures.

Thomas Edison a famous inventor and scientist once said: “I have not failed, I have just found 10,000 ways that won’t work.”

As a business person supposing you have identified a new business opportunity that seems innovative and rewarding, what are the legal issues to consider?

One of the most important things to do is put down your plan in writing in form of a business plan.

A business plan will come in handy when analysing the legal issues for your venture.

The first thing to do would be to establish the legal environment for your venture.

For example if a venture is illegal in Kenya then no matter how well it is laid out, it remains impossible to pursue it.

You may consider carrying out the venture in a friendlier jurisdiction.

If the venture is legal under Kenyan laws, then the next thing to do is to ascertain the regulatory requirements for the venture.

This will involve assessing regulatory approvals and government policies and how to best take advantage of the favourable ones while going around unfavourable ones.

For example the Advocates Act in Kenya prohibits law firms from admitting into partnership a person who is not a qualified advocate.

Yet as a law firm you thought that admitting a leading financial expert into partnership would give your firm a competitive advantage over other law firms in the area of financial services law.

This provision of the Advocates Act would totally kill your idea.

However, you can still go round it if the financial expert is willing to invest six years pursuing registration as an advocate and a further two years of practice to enable him be admitted as a partner.

Once the regulatory loopholes have been sealed, the next thing to consider would be the form of business structure.

Depending on the nature of the business, the venture can be formed as a sole proprietorship, partnership or company.

Each structure has unique advantages over the others as well as peculiar disadvantages.

It is up to the business to make a decision by weighing the pros and cons of each structure vis a vis the business requirements.

You must also consider legal issues in capital raising methods.

The business can raise funds from personal savings, borrowing from family and friends, borrowing from financial institutions, private placements and joint ventures.

Legally, the simplest methods are raising funds from savings as well as borrowing from family and friends.

Bank loans may require collateral security.

If a business has no asset that would from collateral then it may consider raising equity capital by private placements and joint ventures.

The requisite financial ratios like liquidity and debt to equity ratios, would also affect the decision on whether to go debt or equity when raising capital for the business.

The firm must also consider protecting its innovative ideas by means of intellectual property laws.

Intellectual property rights are intangible assets of a firm and serve to increase the net worth of a firm.

Additionally, seeking intellectual property rights ensures that the idea is protected and at most times helps the firm maintain a niche over its competitors.

Other operational aspects of the business such as location and human resources raise a number of legal issues that have to be taken into account.

When considering location; a buy or lease decision has to be made. Each decision comes with its own legal issues.

For example, if the firm decides to buy premises, then sale agreements and due diligence on the property have to be undertaken. If it makes a decision to lease, then a lease will be prepared and registered.

Employees are a key resource of the firm and all necessary laws pertaining to labour must be adhered to in order to minimise legal risk.

Issues such as contracts laws and retirement benefits laws are some of the legal issues to be addressed.

Before establishing a new venture, ensure that you do engage a legal advisor to advise you on the legal requirements for your venture.