Business Women

Minimizing business and legal risk

Best practices that every designer should follow
Monday, July 29, 2013
By Denise E. Robertson

All business enterprises face risks. Successful business enterprises identify and make provisions to manage those risks.

In the design sector, designers face three types of general risks: financial; time; and impact on reputation.

For firms that have borrowed money to maintain the business, there is the risk that revenue will be insufficient to pay the debt. If a designer makes a professional mistake, their insurance will usually cover the claim. However, if there is a civil judgment against a designer that is not covered by insurance, the amount of the judgment plus legal expenses can have a crippling effect.

Dealing with legal claims and complaints can be a time-consuming distraction. The time spent defending claims and preparing for court proceedings would be better spent on business.

Impact on reputation
This is the greatest risk because reputation is a designer’s significant asset. It is crucial for a designer to protect their reputation in order for a business to survive.

Additional risk factors
Other ways a designer can be exposed to risk include:

  • Taking on a project for which the designer is not qualified.
  • Failing to outline the scope of a project, leading to disputes with clients.
  • Failing to clearly define obligations when working with others.
  • Giving personal guarantees or otherwise creating the exposure to personal liability.
  • Lack of insurance.
  • Putting too much money and time into a project and not getting paid.
  • Employing others without the proper safeguards in place.

Mitigating risk
There are five steps a business can take to minimize risk.

First, be sure to properly structure the business. Make sure personal assets (home, car and bank account) are kept distinct from business assets. The business structure not only affects liability, taxes and reporting obligations, but it may also have a significant impact in the execution of a business strategy. Types of business structures include sole proprietorships, partnerships or corporations, and there are advantages and disadvantages to each.

Second, document the business relationship when working with others. It may be a partnership or shareholders’ agreement with business partners, an employment agreement with an employee or a joint venture agreement. Regardless of the type of relationship, adequately documenting it in writing will help to minimize business risk if something goes wrong.

Third, client services agreements need to be in writing and signed by the designer and the client. Written agreements minimize risk by ensuring both the designer and client have the same expectations and that clarity is achieved in the working relationship, including confirming the scope of services, fees and any other issues.

Fourth, intellectual property – the goodwill of a business – is an important consideration as the business grows (as it is worth something only when the business is worth something). Business owners can take steps to protect intellectual property. For example, for unregistered copyrighted work or publications that are to be protected, add the copyright symbol together with the designer’s name and date. When a designer seeks help or input from others, there needs to be some protection of ideas, business plans, methodology, designs and work-in-progress (such as a confidentiality and non-disclosure agreement).

Fifth, while few designers are sued successfully, things can go wrong in every business. It is important to have insurance in place such as general liability insurance, errors and omissions liability insurance, and business interruption insurance. Designers may face legal claims brought by unsatisfied clients, suppliers or competitors seeking damages. Designers can also face discipline proceedings with a provincial regulatory association resulting from complaints brought by unsatisfied clients. When faced with a legal claim or regulatory proceeding, legal advice should be obtained as soon as possible to assess exposure, not only in terms of the economic expense but also loss of time.

Denise E. Robertson practises private business, corporate and regulatory law at Mills & Mills LLP, and is chair of the firm’s design law group. She provides comprehensive services to design sector professionals, businesses and regulators. Denise can be reached at 416.682.7139 or [email protected].

One thought on “Minimizing business and legal risk

  1. It is important to note that if you do have errors and omissions insurance coverage in place, you should immediately inform your E&O insurance provider of a claim or possible claim because often the provider will be responsible for mounting the defence for you, so the earlier they are on board the better. Check your policy as your insurance carrier may require being part of the attorney selection process or limit coverage if it does not provide the legal representation.

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