Starting a successful business is every entrepreneur’s dream. A great concept and protecting it is the first phase of a business start-up. Joseph, who is opening a small restaurant business, needs to be conversant with the local, state, and federal laws that govern his business enterprise’s operation. Although understanding the legal requirements to avoid conflicts with the law is a critical requirement, Joseph should know how to engage with his business partners, employees, customers, and the public. Assistance in managing contractual obligations, protecting intellectual property, forming the right organizational structure, and covering against critical legal liabilities is necessary for Joseph to run his business with minimal loss.
Elements of an Enforceable Contract
Contracts are legally binding agreements with specific elements to make them enforceable. Occasionally, some oral concurrences can be enforceable under a court of law. Joseph has an existing agreement with his cousin, Alfred, to supply baked goods to his restaurant. He has a concern whether his cousin will meet his increased supply demands. Initially, he has been engaging Alfred in a verbal consensus without any signed or written document.
Depending on the specific state law, oral commitments can be enforceable but to a certain extent. In case of disputes, unwritten promises can be a challenge to prosecute unless there is undeniable evidence or witnesses. Additionally, Statutes of Fraud require certain agreements to be documented (Smits, 2017). Some business deals involve complex clauses on offer or acceptance, which makes verbal agreements unenforceable. Consequently, for Joseph to secure his business against interruptions or future suits, he must enter into a legally binding contract with Alfred. A contractual agreement must contain certain elements that will make it enforceable (Smits, 2017).
Offer
The contract between Joseph and Alfred must contain promises to each other. The agreement should mention the obligations of each of the two parties. The contract should specify that Alfred is required to supply 100 pieces of baked goods daily.
Consideration
The contract must contain a promise to exchange something of value for the delivery of the baked goods. An agreement is initiated because of a consideration. In this case, the contract must state how much each baked product will cost Joseph and the credit period to settle his debt.
Acceptance
An acceptance must be unambiguous and not open to contention. The approval can be done verbally or by deeds as stipulated in the contract. Notably, the acceptance must be as per the agreement. If one party does contrary to the contract obligations, then it is perceived as a rejection. The endorsement in a contract between Joseph and Alfred will be the supply of baked goods. On the contrary, Alfred can reject the offer by declining to supply the goods.
Mutuality
Two parties to the contract must agree with its terms. For instance, if Alfred feels he will manage 80 pieces per day, it should be stated clearly in the contract. The obligations to the contract should be clear and accepted by both parties.
Therefore, the above elements in a contract make it enforceable. Joseph will meet the burden of prima facie if an agreement existed with the mentioned critical features. Alfred can challenge the deal by providing evidence if one of the contract components is missing. Additionally, a court of law will interpret a contract as per the ordinary meaning of the words and the parties’ intentions (Smits, 2017). An arrangement in Texas might be interpreted differently in Alaska because words can differ in their meaning from society to society. A drafted contract will save Joseph from legal disputes which make it essential.
Limited Liability Company
The business structure is critical in determining the level of liability the owners can absorb. Sole proprietorship or partnerships exposes the director’s assets to risks from the business creditors. The owner’s wealth can be liquidated to pay for the business debts. Therefore, entrepreneurs work to avoid linking their businesses to their wealth. If a business is not correctly structured, its fall can mean the owner’s financial ruin. A limited liability (LLC) company was designed to protect a business’s directors from limited liabilities (Mancuso, 2021). An LLC shields the owner’s assets from the creditors of the business. The company is a separate legal entity from the directors.
Establishing an LLC is a simple process with notable differences from one state to the other. More than one member can incorporate LLC; therefore, Joseph can team up with his two siblings to form a company that will protect them from full liability. An LLC is created under state law; however, many states are guided by the Revised Uniform Limited Partnership Act view, which prohibits liquidating a business’s assets to settle personal creditors of a business owner. Additionally, the company is shielded from the owners’ private creditors (Mancuso, 2021). Notably, the requirements for the formation of an LLC are more demanding than a sole proprietorship or a partnership but with better benefits. Joseph and his siblings should consider incorporating an LLC to protect them from avoidable business obligations.
LLCs will work best for asset protection strategies when combined with other programs. Successful businesses tend to be associated with the founders or the person behind the success. A director can dissociate his assets from the company by forming a domestic protection trust (Mancuso, 2021). Joseph and his partners can consider creating a domestic asset protection trust and register their wealth under the entity. This will give the directors full liability from the company creditors. The business might be a startup, but it can grow to become a successful enterprise.
Intellectual Property
Intellectual property (IP) is the lifeline of any business when the enterprise takes the necessary steps to protect it from competitors. IP includes original ideas, discoveries, inventions, designs, and creative work. The emergence of technology has increased the risk of cloning business innovations with ease. Small-medium enterprises develop new product and processes necessary to stay competitive (Brem Nylund, & Hitchen, 2017).
Losing an IP can lead to a loss of revenue essential for the success of a company. If business losses its competitive advantage can lead to huge losses. Joseph must protect his invention of the croissant from giving his business edge over the rest. IP is guided under the Intellectual Property Law. Joseph can defend his intellectual property through three means (Brem et al., 2017):
Register Patents, Copyrights, and Trademarks
Copyrights, patents, and trademarks provide commercial value to an enterprise. If a business wishes to use registered IP, it must do so under a free or paid license. As a result, Joseph should register a copyright for his tangible and intangible creative works. It will be easy to validate ownership in a court of law in case of a legal dispute. Additionally, businesses use symbols, words, and logos to differentiate one entity from another or as an identity and marketing strategy. A company will connect to its customers through symbols and expressions. Some unethical business owners would want to steal or copy a logo from a successful business. Registering a trademark will protect the company from possible commercial thieves. Finally, Joseph can register a patent to save any unique product he invents. Any business entity must seek a license from a patent owner before reproducing or distributing the product.
Register the Business, Domain Name, or Product
Other business people might use an idea or brand name when planning a business knowingly or unknowingly. To protect against such infringement, a business owner can register the product, domain name, and business name. For instance, Joseph can register the product name croissconenut to incorporate an LLC with his siblings.
Create Non-Disclosure Agreements for the Employees
Employees have crucial information about the business that should be protected. If a worker decides to leak how the business makes croissconenut, it ceases to be a household product at Joseph’s restaurant. Joseph created the product, and it makes business sense to protect the snack’s recipe from leaking. To solve the predicament, Joseph should make his employees sign non-disclosure or confidentiality agreements to protect his trade secrets.
It is crucial to keep IP safe because in case of theft, apprehending the culprit can be a challenge, prosecuting the thief is complicated and getting the information back is almost impossible. Therefore, a business owner must take all the necessary precautions to protect IP. Joseph can take steps such as not revealing his croissant recipe to the employees or showing it to few trusted individuals. Additionally, informing the IP employees to be protected will make the workers take the necessary steps to ensure it is preserved.
Legal Liability
Negligence during a business operation can result in huge compensations from a court verdict. Harm to others in an enterprise can be interpreted as legal liability and result in huge monetary loss to any organization. Legal liability is prosecuted under the tort law, which explains the extent of liability in case of bodily injury (Abraham, 2017). There are different types of liability exposures a business can face. The relationship of the aggrieved individual to the business determines the type of exposure. Employees, customers, or the general public can claim compensation from a business in case of an incident. If an employee slips and falls at work, they can claim under an employee accident cover. A business owner should protect the enterprise from such claims by procuring the necessary insurance.
The tort depends heavily on the incidence and the magnitude of the liability. The egg-shell plaintiff rule proposes compensation for a bodily injury, even if it was unforeseeable. Tort law can impose a penalty without a proven relationship between the plaintiff and the defendant. Despite the perceived injustice of compensating to a stranger, the law has faced limited complaints since its inception (Abraham, 2017).
The controversy in the law is overlooked because it relies heavily on insurance to cover the liabilities. However, Schwartz, Goldberg and Appel (2018) propose radical changes to the law because of the excessive compensations verdicts. Transferring risk to insurance companies allows business people to operate without interruptions or worry. A construction company trades in a high-risk environment. Insurance policies allow such a business to proceed with minimal interruptions and financial losses.
In rare cases, an individual from the public might get an injury on a business premise. If signage falls on a pedestrian and causes bodily injury, the business should compensate for such an incident. Public liability insurance will protect the company from compensation in case of an incident from a pedestrian (Abraham, 2017). Other forms of insurance will cover the business from employees or its customers. For instance, the cyclist who crashed into the “grand opening” sign will claim under a public liability insurance cover. If Joseph had not procured public liability cover and a court of law rules against him, he will have to pay from the business proceeds. The necessary insurance covers will protect the business in case of an eventuality.
The public liability insurance cover protects a business from claims made by the public. The cover indemnifies an enterprise against claims from bodily injury, death, or property damage. Notably, public liability covers incidences that occur at a business premise (Abraham, 2017). Suppose Joseph has a public liability cover and the cyclist files a lawsuit against him, he will file the suit with the insurance company, which will cover the legal cost or compensation. The insurance company will pay up to the limit of the policy. The business or the owner covers any overhead amount.
Summary
Joseph is making strides to start his restaurant business albeit with difficulties. Legal advice will guide him on how to interact with his business partners, suppliers and competitors. Joseph should learn how to draft an enforceable contract to maintain a formal business relationship with his cousin. Offer, consideration, acceptance and mutuality are essential elements of a legally binding contract. Additionally, Joseph should protect himself and his siblings from business liability by forming an LLC.
The law will shield directors in an LLC from the business creditors in case of liquidation. Also, Joseph should take the necessary steps to protect the business intellectual property. Registering copyrights and trademarks will protect the company name, logo and slogan from unauthorized use. Finally, Joseph should procure the necessary insurance policies to protect the business from liability due to bodily harm. Unforeseen circumstances from court litigations can cause the enterprise huge monetary losses. The above suggestions will help Joseph insulate the business from inconvenience.
References
Abraham, K. S. (2017). Rutgers university law review: Tort luck and liability insurance. Rutgers University Law Review. 70(1).
Brem, A., Nylund, P. A., & Hitchen, E. L. (2017). Open innovation and intellectual property rights: How do SMEs benefit from patents, industrial designs, trademarks and copyrights? Management Decision, 55(6) pp. 1285-1306. Web.
Mancuso, A. (2021). Nolo’s quick llc: All you need to know about limited liability companies, 11th ed. Nolo.
Schwartz, V. E., Goldberg, P., & Appel, C. E. (2018). Deep pocket jurisprudence: Where tort law should draw the line. Oklahoma Law Review, 70(2), 359. Web.
Smits, J. M. (2017). Contract law: A comparative introduction, (2nd ed.). Edward Elgar Publishing.