LEGALPRENEUR (The Entrepreneur and The Law) Episode 2

Good day amazing start up. You possibly woke up today with another excellent touch up-you think you should add to your venture. Well, that’s wonderful. You’re also probably thinking of ways to attract and draw in investors (they’re very vital to your plan after all). The thing is, if you do have a great business plan, it wouldn’t be long before investors come knocking on your door. Or if you have to go out looking for them (like it usually is), you may not have to wait for long before you start getting positive replies. If neither of this are likely to be your case, please do well to do a thorough review of your business plan.
In the meantime, if you fall in any of the above first two categories, then welcome to the unavoidable point in your entrepreneurship venture where you have the difficulty of deciding how much leverage and say your investors should have in your business. Most entrepreneurs who get it wrong at this point, have to keep their both eyes wide open, with the increasing paranoia that their investors will eventually hijack their businesses someday. This brings us to our issue for determination today. SHOULD INVESTORS DECIDE HOW YOU RUN YOUR BUSINESS?  Surely, the obvious answer to this is “NO.” Most of us will not hesitate to jump up from our seats, vehemently saying: “Oh hell No. This is my business, my enterprise, my venture; not theirs.”You may not be far from the right answer. Many entrepreneurs have great ideas and business plans and will definitely do not want any investors dipping their hands into their sauce and spoiling the gravy (you’ll get the idea if you keep reading). But we definitely do want whatever value they can bring into our venture. The truth remains that, you birthed the idea, you have the perfect plan drawn out, this venture will take a whole lot from you, draining you physically, mentally, emotionally, and financially; so you must surely have concluded every careful analysis, sighted out and filled in all loop holes, built bridges to make sure your dream comes to reality. As a result, there is no better person to run your business but you. No doubt, you need helpers, but that’s all you need; helpers, not hijackers.
In 1930, Colonel Sanders, founder of Kentucky Fried Chicken K.F.C., started selling his special chicken dishes in a service station (in Corbin, Kentucky) offered to him Shell Oil Company, with the understanding that the company will receive a particular percentage of the sales. In 1952, Sanders franchised his secret recipe to Pete Harman, the operator of one of the city’s largest restaurants, and within the first year of selling the product, sales more than tripled in the restaurant, with 75% of the increase coming from the sales of Sanders’ fried chicken. He also franchised the concept to other restaurant owners who paid him reasonably well. Up until 1964, when he finally sold the Kentucky Fried Chicken Corporation, after having patented his idea in 1960, he controlled and determined the manner in which chicken and it’s gravy was prepared in his large restaurants, which were spread across the country. His idea of preparing the chicken gave the chicken and it’s gravy it’s special, unique taste, despite the numerous number of investors he was affiliated with. As seen from Colonel Sanders’ example, you can have investors and still remain the principal decision maker in your business. You just have to take these two major steps:

Firstly- It has been said over and over again that you WRITE EVERYTHING DOWN. Every single idea connected to your business plan, every strategy to actualise the concept, every single step you plan to take, write it all down. Not only will it give you a clear cut workable draft to follow, it will also help you to determine the rules, regulations, do’s, don’ts, principles and values guiding your business. As time goes on, for the purpose of flexibility, you may alter your business plan (which your investor will be aware of).
This step will immensely help you legally because the court places high value on records and the Law appreciates substantial/tangible evidence in the case where any misunderstanding arises. The point is to ensure that your investor has a clear understanding of the venture he/she is buying into, and a document drawn to this effect will reveal that the founder was open from the beginning. In any event where the investor introduces any foreign element, the original business plan can always be used as a solid reference.
Secondly- Define your terms clearly. The relationship between the investor and the founder of a business venture is a contractual one and as such it is very important that every term of the contract or obligations accruing to either of the parties be clearly and definitely stated to avoid any misrepresentation or misunderstanding which may arise. Therefore, what both parties are expected to do, the benefits to be enjoyed, the burden to be shouldered, the extent of powers to be wielded both parties, should all be clearly spelled out in the contract. This will make up the terms of the contract. Parties in a contractual relationship have freedom to contract and as such, the court will not draw up a contract for them. However, when a misunderstanding arises, the contractual document is an authoritative document which the court will rely on to determine the intentions of both parties when they entered such relationship.
Please note that it will be preferable if you employ the services of a sound lawyer in this aspect. However, don’t panic if you cannot afford to. Just write down everything agreed on anyway.
From the foregoing, you can clearly see that you will do yourself and your business a really huge favor if you adhere to these simple guidelines. Make sure to insist on them when going into business with any investor.
However, there is no denying the fact that many investors mean well for your business. After all, if you succeed, they profit. So, while keeping an open eye and being very meticulous with who makes what decision in your venture, also do well to maintain a good relationship with your investor.
Be a great LEGALPRENEUR.

 

 

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Albright Emmanuel

Law Student and Legal Enthusiast, Co-Founder at Go Digital Agency Port Harcourt .  Let’s catch up on Social Media follow and add me.

      

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