How to deal with your first legal notice as an Entrepreneur?

12 Feb, 2019 / mvsblog

There is an entrepreneur who comes to me for various clarifications. We will call him Mr. E. One evening, I got an SOS message from him requesting for a meeting and I immediately agreed, considering the gravity of the situation.

When we met, E showed me a legal notice that he had received from a customer seeking reimbursement due to unsatisfactory service rendered. The amount was less than $ 50k. E wanted to settle the matter but his partner disagreed as he had slogged for this for 3 months. I will not get into the details of the dispute.

Mr. E panicked and admitted that this was the first time that he was unsure about how to react. I told him that in businesses, it was common to receive notices of different nature and that we must always be prepared.

The next question E had was about the kind of lawyer that he needed to consult and he also mentioned a willing next-door lawyer. Here are the dos and don’ts that I shared with him and I am sure it will be useful for everyone who is in a similar situation:

  1. If you receive any notice or dispute, collect all the related communications and information of the specific case, sequence it and prepare a file.
  2. Meet the lawyer, present the case and see how he views the subject. You can present it to one more lawyer for a second opinion. Depending on who makes more sense to you, engage that person to prepare a detailed reply to the notice.
  3. As promoters, we should know all the details mentioned in the reply. Clarify if necessary and only then accept.
  4. The reply to such notices must be sent within reasonable time. Too much delay is not acceptable.
  5. Wherever possible, arbitration should be initiated and closed.
  6. If the dispute still hasn’t been resolved and if there is a need to go to court, then seek a recommendation from the lawyer on whom to engage for the litigation argument. Lawyers have different specializations and we must understand that.

An enlightened Mr. E suddenly now asked me that since his company was currently going through the process of raising money, did he really need to go to a law firm? I told him that it was the most important part and added the following points:

  1. There are many definitive documents that a company needs to be executed as Share purchase agreement, Share holders’ agreement, Employment agreement etc.
  2. After due diligence, there will be warranties, CP’s and related linkages to cover.
  3. Every document should be read and the language understand before execution.
  4. In normal course, it will not be too much of an issue, but if the intent is wrong for the investor or in case of disputes, all these can be extremely tedious and painful to take care of.
  5. We also have to look at compliance for any investor coming from oversees and also plan in order to shift the organization outside the country of operation.

Here are some more matters that I always like to take care of:

  1. Don’t include your spouse as the other director in the company.
  2. Don’t sign any agreements, including bank documents, without reading it.
  3. Don’t agree to give shares as it is better/smarter to share the revenue instead.
  4. Be extra careful while discussing investment with unknown individuals,

Hope these insights help all entrepreneurs who are starting out.

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