Why should SMEs get legal advice?
As an SME owner, you may have some reservations about hiring a lawyer especially as this can cost you a lot of money – money that you may be inclined to spend in other areas of the business. But did you ever stop to think about what could happen to your business without the proper legal cover? Many SME owners will tell you from experience that running a business without the proper legal advice could wreck it!
Legal agreements: do you know what they really mean?
Early on in her journey as an SME owner, Nada Mohamed faced a dilemma about whether or not to get legal advice. She did not see the importance of hiring a lawyer until she found herself looking at legal documents that she just could not understand:
“I thought that I could manage my legal agreements and documents on my own. I told myself that it would be better to save money especially that I had a very small business and a limited budget. It was only when I was faced with a term sheet from my first investors that I asked for help and I am glad I did. My lawyer advised me not to take up the offer due to the terms (I had no idea until he explained to me what the terms meant) – best decision I have ever made.”
Is what you are signing today detrimental to the business tomorrow?
By having a lawyer from the very start, you can remove some of the grey areas and doubts associated with the unknown. Legal documents are there to protect businesses today and in the future. You may find that as your business grows and evolves, terms signed in the early days become a hurdle to the business. A lawyer is there for this reason – to give you the understanding of what the agreement means today and how it will affect your business in the future. There are certain clauses that could affect your business operations down the line especially in situations that may not have even crossed your mind.
Afzal Hussein shares his experience:
“About a year after I started my company, business was booming and I was in desperate need of additional funding to keep up with the growth. I was approached by a group of investors and was ready to sign an agreement with them. But my lawyer pointed out a number of terms in the contract that would have given the investors so many rights that it would have been hard to bring in new investors.”
What happens if your co-founder leaves ?
Many SMEs are partnerships or made up or multiple founders. All are very passionate and share the same vision of the business. Unfortunately circumstances change and sometimes teams have to break apart. Some cannot handle the stress or others have other commitments. What happens when one of the founders leave? They have their shares in the company and without any paperwork, they have the right to keep those shares. This is where it is critical to have a solid shareholder agreement in place from Day 1 – this would include clauses such as the outcome if one of the founders decides to leave the business.
Samer Yousef weighs in on how solid legal advice has helped protect his business interests in the face of future surprises:
“When my company co-founder and I we were drawing up a shareholder agreement, my lawyer said that I should include a clause addressing what would happen to my co-founder’s stake if he suddenly left the company. I thought he was wasting my time and my money – we were both in it for a reason and that was to build the business to a successful enterprise. Little did I know – 6 months later, my partner decided he could not handle the stress and left the business. This meant that while he had gone off to the corporate world with a nice salary, I was doing all the hard work, and building up his share as well. In my case, I was able to buy back my co-founder’s share at its original value. I cannot imagine what my situation would have been without the leaving clause”
Legal advice is expensive and can seem very minor or unimportant at the start of the business. We would rather spend the money somewhere else helping the business grow. However, spending on the right legal advice can help your business grow by removing future hurdles.