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  • Writer's pictureFroese Law

When Your Side Hustle Becomes Your Main Hustle: Legal Considerations for your Start Up

Updated: Feb 23, 2021

During these times, we have been given a rare opportunity to reflect on our life trajectory. So if you’re thinking about how you can’t go back to your regular job and reflecting about how your side hustle has enough momentum to become your main hustle, here’s some legal considerations that you should factor into your business plan.

1. Setting Up Your Business First things first, under what umbrella will your business operate? There are 3 main entities available to you: sole proprietor, partnership or incorporation. Each type of entity has its pros and cons and their suitability to your situation will depend on your fact scenario. For example, do you have personal assets to protect? Is your industry highly regulated? Are you attracting investors? Is there a high level of liability associated with your product/service? Are there tax advantages to consider? 2. Protect your Business with Non-Disclosure Agreements Non-disclosure agreements are key to protecting the salient part of your business. A NDA is used for the initial stage discussions with a third party with whom you’re contemplating entering into a business relationship. The NDA obligates those third parties to keep the information you disclose confidential, and also confirms that the information is proprietary to you. Essentially, the NDA creates a contractual protection that enables you to disclose your confidential information/trade secrets, without risk that the third party will steal your confidential information. If the third party does use your confidential information for its own benefit, you have a contract from which to enforce and can claim a breach of contract. 3. Bring On the Right People and Protect your Rights with Independent Contractor Agreements It is unlikely that you will hire employees right off the bat, but it is also unlikely that you are able to do everything by yourself too. Hiring independent contractors to fill that skill gap is essential for you to keep that momentum going. An IDA is a commercial agreement that you use when you actually retain the third party service provider to work for you. Contractors are not employees of your company, but rather are retained to perform a short-term, specific project. Similar to the NDA, the IDA includes confidentiality provisions, however the IDA is far more comprehensive. The IDA includes the actual business terms between the parties (i.e. payment, fees, services to be provided, deliverables, project milestones, quality of work, termination of relationship, etc.). It is also important to note that without entering into a written agreement which provides for an assignment of intellectual property to your company, the assumption will be that the contractor will own the intellectual property it creates during the performance of the services. So the IDA should also include an assignment of intellectual property rights and waiver of moral rights. 4. Protect your Intellectual Property Intellectual property laws are essential to protecting and commercializing your creative ingenuity. Intellectual property laws are comprised of patent, trademarks and copyright. Although patent laws may not always be applicable to your business, copyright and trademark laws will invariably always be applicable. Trademarks lay at the foundation of any brand. For the sake of brevity (and to avoid dreaded legal’ese), we can boil down the intricacies of trademarks law to this: If a branding indicia is able to connote in the consumer’s mind an association between the product/service and the company producing those products/services, it is possible that the company will be able to secure a monopoly over that power of persuasion by trademark protection. Therein lies immense power that should be carefully curated and protected to ensure that your company and its brand sets itself apart from market competitors through trademarks law. 5. Enter into the Appropriate Commercial Agreement There will be a myriad of ways that you will engage with 3rd parties to grow your business. Codifying that business relationship in a written agreement is key. Examples include manufacturing agreements, licensing agreements, sale agency agreements, sponsorship agreements, brand ambassador agreements, influencer agreements, etc. Carefully architecting the applicable commercial agreement is important. Work with a lawyer to ensure that your business is protected from risk and liability and that each parties’ rights, obligations and restrictions are clearly delineated. Codify what the scope of the agreement is. Carefully architect the compensation model. Itemize the payment terms. Regulate the sharing of your business’ confidential information through strong confidentiality provisions. Delineate strong quality control measures. Bolster your position through strong representations and warranties. Itemize the events that trigger termination. Understand who is responsible for what if the deal terminates. 6. Properly Set up Your Online Presence It’s unfathomable to think of starting a business without having a) a website, b) an e-commerce website, c) social media accounts and/or d) an app. Make sure that you have the right terms of use and policies (including privacy policy, returns policy, posting policy, moderation policy) set up to address any issues that may arise. (Because remember – taking your brand online creates immense opportunity, but that is coupled with immense exposure for risk). Also, don’t forget about CASL compliance if you are also using digital email marketing campaigns. 7. Understand the Nuances of Your Industry Know that each industry may come with its own set of governing laws. For example, the cannabis industry is an extremely regulated industry. Depending on the ingredients and product claims, a cosmetic product may be governed by Health Canada as a pharmaceutical product. Food products must abide by specific packaging and labelling guidelines. The cannabis industry is rife with regulatory requirements at every turn. Properly navigate the legal requirements of your industry.

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