3 COMMON LEGAL MISTAKES MADE AT FORMATION OF BUSINESSES

Failing to properly fix rights & responsibilities

When founders start working on a project they should have clear rules in place - a framework to structure their venture. There should be clearly written rules outlining the following:

The agreement can cover only few crucial issues. But it has to be well thought out and well drafted.

Failing to properly control share transfers

A founder might decide to leave the company, which can cause a major disruption on many levels including revenue. To cope with major changes shareholders might want to control the extent to which share transfers may be made, how they may be made or whether transfers can be made at all.

Not using restrictive covenants

Restrictive covenants impose restrictions on the shareholders to the effect that they will not, at any time when they are shareholders, and for a specified period of time after they cease to be shareholders, carry on any other business that competes with the business of the company or entice away customers, employees or key suppliers. Restricitve covenants are very useful but they require particularly careful drafting.