When researching new business ideas, it’s important to include legal considerations related to the concept. Conducting market research from a legal point of view generally has two purposes:
- Discover what rules apply to my idea of business concept
- Understanding what are the legal repercussions for carrying out my idea or business concept.
In this article, we discuss these two considerations in detail. We explain the reason why it is important to do these types of considerations and the approaches to actually doing the research.
Legal Aspects of a Business Idea
It’s important to understand the legal aspects of a business idea when assessing its overall viability. This means having an idea of how you would turn the idea or concept into a business. First, start with the concept and ask the questions:
- Does anyone own my idea?
- Does the government (federal, state, or local) or private industry regulate the topic of my idea?
- What methods will I use to deliver a value proposition and receive value in return?
Each of these questions will lead you down the road of understanding the legal aspects of a business concept. Let’s begin by the question, “Does anyone own my idea?” This will help you determine whether someone has intellectual property rights (patent, trademark, copyright, or trade secret) in the idea. If so, how do you go about getting permission to use them? If no, how would you secure rights in the idea for yourself? These require an understanding of the various types of intellectual property rights, the process for licensing or otherwise legally using those rights, and the process for securing those rights for yourself.
The next question is whether my idea falls in a regulated industry. Federal, state, and local governments regulate thousands of areas of business operations. They may require licensure, registration, public disclosure, safety standards, consumer or public protection, etc. For example, professional service providers must often be licensed with a regulatory authority. Think about lawyers, physicians, CPAs, insurance agents, real estate agents, securities dealers, investment managers, customs brokers, architects/engineers, machine operators (cars or airplanes), etc. Individuals who make things may also be subject to regulations. Think about brewers/distillers, explosives/weapon makers, chemists, builders, product designer. Most of these individuals have to deal with quality and consumer safety standards. If you have additional questions about regulated industries, use the LawTrades free, question-and-answer service.
The final question is what process you will use to deliver and receive value as part of your idea or business concept. Selling, Leasing, buying something (whether goods or services) generally involves contracts (licensing, purchase/sales agreements, service agreement, etc.). It may involve the collection of consumer information (financial information, demographic information, etc.) that must be secured or the collection of which needs to be disclosed.
Once you understand the legal aspects of the business idea, it should aid you in understanding of how you will structure your business model. Remember, a business delivers value to a customer, client, or end user. In return, the business receives the amount and type of value desired. The methods of delivering and receiving value are where the differences in business model arise. For example, a simple business model would be to purchase a good a wholesale prices and sell it to a consumer for a higher price. A more complex model may be to deliver information to customers for free. In turn, you sell the customer demographic information for marketing purposes to businesses or third-party marketing firms who use that information for their purposes. In both scenarios there is a delivery of value and return of value — the models, however, differ considerably. The rules applicable to each would vary. Selling goods may require compliance with consumer protection laws (think advertising), sales contracts, warranty provisions, financing and lending law (if you sell on credit), etc. Conversely, the second model may involve consumer information privacy, information collection disclosures or notices, protection of child information, copyright law, etc. As you can see, developing a business model for delivering and receiving value will depend heavily upon the rules applicable to that specific idea or business concept.
Understanding the Legal Implications of Your Idea
Once you understand your business model and rules that apply for carrying it out, you can then examine the potential legal implications of failing to carry out that model appropriately. You can ask the following questions to examine the legal repercussions:
- What happens if I use intellectual property belonging to others? (Patented idea, confusingly similar trademark, copyrighted literature or music, wrongfully appropriated company information, etc.)
- What happens if I do not secure the appropriate licenses or permits?
- What happens if I fail to meeting regulatory disclosures? (Regulatory filings, consumer/client disclosures, etc.)
- What happens if you fail to meet your information protection or disclosure requirements?
- What happens if an employee injures a third party while carrying on your business?
- What happens if you cannot meet the requirements of a contract?
Of course, the answer to these questions, once again, will vary depending the nature of the idea or business. Nonetheless, asking these questions and doing simply internet searches will point you in the right direction for understanding the potential legal implications of making errors in commercializing a business idea.
Legal Advice for Any Business
Business planning is very complex. The legal considerations involve only add to that complexity. Failing to identify or comply with legal requirements can have dire consequences for a business. The legal professionals at LawTrades are here to help you along the way. They can provide guidance on the litany of legal requirements applicable to your business.