Directors and owners of small corporate enterprises: managing legal risk

Abstract

[Abstract]: Entrepreneurs and developers of small business enterprises naturally reach a point in their business planning where the legal structure of their venture becomes crucial. For reasons of obtaining finance, property ownership (real or intellectual property) or attempting to limit personal liability, a company, is often chosen as the vehicle for the business. Initially, attention is naturally given to how the company is to be set up and procedural matters associated with the new enterprise. It is suggested however that a lot of faith is placed in the corporate structure and little thought is given to how the new directors/owners can protect themselves against personal risk. Entrepreneurs will regularly undertake a risk assessment in analysing the potential success of any new idea. In the same way, directors or potential directors of any corporate enterprise should engage in some practical legal risk management. Internationally, the number and severity of corporate collapses have meant a renewed focus on issues of corporate governance. There should be a realisation that the duties, responsibilities and potential liabilities of corporate officers have grown. And not just for the larger corporations. Theory recognises that it is within the smaller closely held company that the incentives and opportunities for improper conduct are at their greatest. The purpose of this paper is to identify for small business developers and owners the personal responsibilities and risks that come with the corporate structure. More importantly, the paper aims to provide practical advice on matters to consider at the time of creation of the company and how to monitor and manage the legal risk through the life of the company.