Legal Issues to Consider When Starting Your Own Business
By Peggy Chooi, Partner,Chooi Law LLP and Rachel Ho, LL.B.
Attending to important legal aspects of a business can often be overlooked by entrepreneurs caught in the excitement of launching a new start up. As a lawyer representing such a client, it is vital to redirect attention to identifying and prioritizing the legal issues that are most pressing and in need of immediate action.
1. Business Basics
One of the first legal decisions you will likely make pertains to the legal structure of your business. The decision as to whether to set up your business as a sole proprietorship, partnership or corporation depends on your specific needs and circumstances. The many variables may include the type or nature of your business, your personal risk tolerance, financial and funding factors, the scope and scale of the business, and future considerations, among others.
Different business structures are governed by separate legislations that have unique requirements. Sole proprietorships and partnerships have similar advantages and are a lot simpler to set up. Both incur relatively low registration costs and are easier to maintain. However, the most noteworthy disadvantage is the unlimited liability you as an individual will face. Incorporating your business, either provincially or federally, resolves the unlimited liability issue to some extent, though it costs more and involves more paperwork and maintenance.
In time, it may be necessary to change the structure of your business due to expansion and growth, or due to the addition of a new partner or a new investor.
2. What’s in a Name?
It is important to take the time to research and choose the right name for your business and the right trademark for the services provided or the products sold. After all, it’s all about identity, branding and differentiating your business from your competitors. While the registration of business names/corporate names and trademarks are governed by different rules, the name/trademark legal issues are often intertwined. It is upsetting and frustrating for a business owner who has incorporated a company under a name to later discover that the same name cannot be used as a trademark due to the existence of a prior identical or similar trademark on the Trademarks Register. The mistaken assumption is that incorporation under a particular name implies the right to use the same name as a trademark.
Ensuring that the name you choose is unique on an international level has become increasingly important with the significance of cross-border trade. For example, American-owned Anheuser-Busch InBev (‘InBev’) and Czech-owned Budějovický Budvar (‘Budvar’) have been litigating over the rightful ownership and use of the ‘Budweiser’ brand as far back as 1910. More recently, the Court of Justice of the European Union (CJEU) in 2010 held that InBev could not register ‘Budweiser’ as a trademark in the European Union. In territories where InBev does not hold the trademark and Budvar does (and vice versa), alternative names have to be used, such as ‘Bud’ or ‘Czechvar’.
Another famous example is between Apple Corps from the United Kingdom and Apple Computer (now known as Apple Inc) from the United States. Litigation began over how the Apple trademark was to be used between the two companies in 1978, ending in 2006 in England. While the Budweiser dispute was focused on geographical territories, the Apple litigation was centered on the scope of use of the trademark. Initial settlements in 1978 prevented Apple Computer from entering the music industry, which of course, Apple arguably ended up doing with the introduction of the iTunes Store in 2003. The Apple dispute ended in 2007 with Apple Inc obtaining ownership of all trademarks related to ‘Apple’ and licensing back certain trademarks to Apple Corp.
Given the length and significance of these disputes, it would be wise to carry out the appropriate research of other regions you may want to operate in addition to checking for identical/confusing names in Canada.
Also of interest, a domain name is like a digital signpost for your business. Whether you are operating an online business or otherwise, securing the right domain name using your company name or trademark will help enhance your online visibility and presence.
3. Protecting Your Intellectual Property
There are different types of IP rights, namely, trademarks, copyright, design and patent rights. Depending on the nature of your business, certain IP rights may be more relevant than others. For instance, Amazon is not just part of the corporate name of Amazon Technologies Inc., it is also the invaluable trademark of the e-commerce giant. Amazon owns some very interesting patents, including a recent U.S. patent for an “Airborne Fulfillment Center” or what some are calling, “a giant flying warehouse”, that deploys drones for delivery services.
IP ownership should not be viewed solely from the perspective of establishing your rights. It can also provide opportunities for exploitation of these rights, such as through licensing, franchising and potentially, the opportunity to sell or assign your IP rights.
If you have your sights set on the international market, it is important to take steps to protect your rights internationally.
4. Licenses, Permits and Insurance
Find out what regulations govern your type of business and what licences and/or permits are required from this useful site. The Canadian Anti-Spam law prohibits businesses from doing certain unsolicited activities online, such as the sending of unsolicited commercial electronic messages without obtaining the recipient’s consent. There are privacy laws that businesses have to pay attention to regarding the collection and use of personal information in the course of commercial activities. For some businesses, having the appropriate insurance in place is strongly recommended. For instance, for food vendors (whether a food truck or a farmer’s market stall), protecting against potential food mishandling and sanitation claims is of paramount importance.
5. Relationship with stakeholders
In the course of running your business, you will be working with various people such as suppliers, distributors, dealers, service providers, payment providers, web designers, software developers, social media consultants, and legal and financial advisers. Within your organization, you will have business partners, funders, investors, employees and contractors. Most importantly, you will need customers, clients, subscribers or users. Ensuring that the parties understand their respective roles, obligations and responsibilities will be crucial for the success of your business. Having the proper contracts to govern these relationships, where the scope of work is properly defined, and the rights and obligations of the parties are clearly set out, will avoid misunderstanding and conflicts down the road.
The above is by no means an exhaustive list but perhaps a good starting point when looking to identify potential legal issues that your business may face.
Anheuser-Busch v. Du Bois Brewing Co., 73 F. Supp. 338 (W.D. Pa. 1947), [44]
Judgment of 29 July 2010, Anheuser-Busch Inc. v OHIM and Budĕjovický Budvar, národní podnik, C-214/09 P
Apple Corps Limited v Apple Computer, Inc [2006] EWHC 996 (Ch)
https://www.apple.com/pr/library/2003/04/28Apple-Launches-the-iTunes-Music-Store.html
http://www.apple.com/pr/library/2007/02/05Apple-Inc-and-The-Beatles-Apple-Corps-Ltd-Enter-into-New-Agreement.html
U.S. Patent No. 9,305,280
