Five tips for protecting your business

Congratulations.

Your business, started three to five years ago, is successful.

You have made it past the "start-up" stage and things are clicking.

Now is the time to start thinking about the next 15- 20 years in order to avoid legal pitfalls that can harm your business.

First, take care of your "intellectual property." You may think this isn't necessary because you don't have any patents or trademarks, but intellectual property encompasses more than patents.

Almost every business has some form of intellectual property.

Do you have a customer list? How about a manual that covers all operational aspects of your business? These constitute proprietary assets that warrant protection.

At a minimum, all employees and consultants should sign agreements that assign the ownership of work product to your company and require them to maintain confidentiality during and after their employment.

Second, be mindful of the problems that can arise when you either don't have a human resources function or it's low on the priority list.

Your employees are among your most valuable and regulated resources.

If you have made it three to five years, basic issues such as unemployment insurance are probably under control.

However, have you considered issues like sexual harassment, discrimination and compliance with immigration laws? Make it a priority to have a thorough understanding of these issues and make sure your employee manual is updated and reviewed on a regular basis.

Mistakes in this area can result in legal fees, disruption of your business and poor employee morale.

Third, if you have partners or stockholders, your company needs a "buy-sell" agreement.

For example, if your business is incorporated, the stock issued to each owner is personal property just like a car.Without contractual restrictions on the transfer of stock, it is freely transferable.

That may sound nice, but if your company is closely held, you probably don't want the stock to be freely transferable.

Most buy-sell agreements identify "triggering events" like death, divorce, disability, bankruptcy and termination of employment to transfer stock.

For example, if all the owners also work in the business and one person decides (or is asked) to leave, you probably don't want that person to remain an owner.

A buysell agreement will provide the company or the other owners the first opportunity to buy the stock of the person who is leaving and outline the terms of the transfer.

This avoids the possibility that the person who is leaving simply sells his or her stock to anyone of their choosing, which means your business inherits a new (and completely unknown) owner.

Fourth, if your business is about to enter into a milestone transaction such as being acquired consult your advisors (lawyer, accountant, etc.) before you sign anything.

A document that may seem innocent enough, such as a letter of intent or term sheet, may set the rules for the transaction and define the tax implications for the parties involved.

Most businesses will only be sold once, so it is important to get it right.

Unlike cars, very few businesses are sold "as-is." The company and its owners will be required to make representations and warranties about the business.

If the buyer suffers a loss due to a breach of those representations and warranties, the seller may end up paying some of the money back under an indemnification clause.

The owners may be asked to stay on after the deal closes, so an employment agreement may be required.

There may also be a non-competition agreement as part of the deal.

Navigating a sale of your business is a complex process, one that is best approached by involving your advisors early on, being completely candid with them and keeping them involved through closing.

Finally, as painful as it might be, pay attention to the details of running your business.

Contracts, stock records, employment records every business has plenty of paper lying around.

It doesn't matter who pays attention to these details it can be someone on the management team, your corporate attorney or some other professional as long as it is attended to regularly.

If the contract with your key vendor requires six months prior notice to extend the term, someone needs to be tracking that provision or you might just end up without a vendor.

If you are going to sublease a portion of your building, your lease probably requires the landlord's consent to take that action.

Many owners just hate these kinds of details.

They prefer to spend time working with existing customers and prospecting for new customers.

Sitting around reading the lease isn't usually high on the priority list, so it is important to have someone managing these details.

Gaps, holes or problems in these areas are often costly to remedy and in some situations simply can't be repaired.

Jim Newman is a shareholder in the Reno office of Hale Lane where he concentrates his practice in the areas of corporate law, mergers and acquisitions, securities law, and real property acquisitions and leasing.