To start or manage a business one has to comply with a number of legal requirements. Starting from a preparatory phase when a potential entrepreneur is mulling options to begin a business, the first question that comes to his or her mind is what kind of legally permitted business structures are available in Pakistan? Then comes the next question as to what would be a suitable business structure in view of the convenience, cost of registration, rate of applicable income tax etc. In the next phase, when a business formally decides to start a business by opting any of the available business structures, more questions crop up including how to get registration of the opted business structure, how to get license to start a particular business activity and how to get the business registered with income, sales tax and labour department etc?

Once all these registration and licensing formalities are fulfilled, the business comes in to an operational phase. In this very important phase of a business lifecycle, the entrepreneur, apart from complying with some mandatory legal requirements - such as filling tax, corporate returns, renewal of licenses etc - has to take some measures to protect its investment and save itself from any potential conflict with its suppliers, customers, competitors and even the employees. These protective measures include designing business-to-business or business-to-customer contract documents, employee engagement policies and appointment documents, website terms of use and privacy policy, registration of trade mark, product design and or process etc.

Given the host of legal requirements throughout the business lifecycle, as noted above, what are the options available to a business especially an SME to fulfill such requirements? The most appropriate solution for an SME is to get legal services from an external legal service provider (LSP)/lawyer to do the needful as and when required. There may, however, be some ifs and buts in the mind of an entrepreneur to engage an LSP. The foremost question being is it worth engaging an LSP? This is a very important question for an SME to find an answer to. Let us try to find out the value in engaging an LSP by SMEs. There is a common perception in our SME community that engaging a lawyer for a routine matter would only increase their cost without adding any value to their business. That is the reason that generally the SMEs only engage an LSP when they are forced by circumstances to do so ie upon receiving a court notice or for filling a court case etc. This perception needs to be dispelled at the outset. Legal service is also a business development service like any other service such as marketing, financial, training etc. However, the dilemma is that neither the LSPs market their services as such nor the majority of businesses take legal service as a business development service.

How legal services can contribute in business development? We shall try to find out an answer with the help of some examples with reference to each phase of the business cycle. In the preparatory phase, choosing an appropriate business form goes to the heart of future business strategy of an entrepreneur. The decision whether to start business as a sole proprietor, to form a partnership firm or to incorporate a limited liability company needs a careful review of pros and cons of each of the structure, with the advice of an LSP. For, each of these structures would require different legal formalities, cost implications, taxation, financing prospects and regulatory requirements. It is only after knowing the pros and cons of each of that business structure that an entrepreneur shall be in a better position to opt a most appropriate one to begin with. In the absence of such an advice, an entrepreneur may end up with an unsuitable selection of form having serious repercussions on the business growth.

In the second phase, when an entrepreneur decides to go for a particular business structure, depending upon the structure, it will need to get legal services for not only getting certification of legal structure(in case of partnership firm or a limited liability company) but also for getting the business entity registered with certain government institutions such as FBR, Drug Authority, Provincial Revenue Authorities, Provincial Labor Departments, Provincial Food Authorities etc, as the case may be.

When a business gets into operations, the need and scale of the required legal services increases manifold in the context of business development be it a case of compliance or protection of investment. Depending upon the business activity, a business may be required to file an annual return of income tax, for example. There are many provisions in the Income Tax Ordinance, 2001 that allow a business to make deductions of certain expenses, while calculating its taxable income for a particular period. Only an LSP having expertise in Income Tax law, would be in a better position to help the business in curtailing its tax liability while taking advantage of those admissible deductions.

The case of investment protection is more akin to the business development. While operating the business, an SME has to engage itself with its partners, suppliers, customers, service providers and employees. An effective way of dealing with all these engagements is to execute written contracts. Legal Advice from LSP(s) on a specific contract or getting a contract drafted relating to a transaction will save a business from a lot of troubles that may arise in case of any dispute with its partners, customers, suppliers and employees regarding the quality, quantity, price, delivery time etc of a product as against an oral agreement. Imagine a situation where all these details are not written with precision while ensuring available legal protections and dispute emerges between the parties regarding the same. Remember, in a court of law, the documentary evidence has more value against the oral evidence. A well written document prescribing rights of the parties with clarity is less volatile to generate controversies between the parties.

Similarly, registration and protection of intellectual property ie trademark, industrial design, copyright, patent and trade secrets is hallmark of success of any business development strategy. Registration of intellectual property enables a business to claim exclusivity regarding utilisation, sale and marketing of its products and services while also preventing others not to use such IP without the consent of owners thereof. LSPs practicing IP laws will be in a better position to advise and help a business about ways and means of registration and protection of IP. Failure to get registration and protection of its intellectual property may result in usurpation of product name and market share by the competitors.

There are, nonetheless, other questions in the mind of an entrepreneur including that the lawyer may not charge a higher fee, that if the lawyer he/she was going to engage would have enough expertise to handle his/her case? These questions reflect a knowledge gap amongst entrepreneurs and LSPs regarding availability and demand of business specific legal services. This gap can be minimized by some individual and collective initiative of SME development institutions and organizations including representative bodies of SMEs such as Chambers of Commerce and Industries/trade associations as well as the regulators. The initiatives that these institutions may include enlistment of subject specific LSPs, facilitation of interaction between LSPs and SMEs, holding focus group discussions, arranging awareness sessions and training programmes on sector specific legal issues both for SMEs and legal service providers, publication and dissemination of leaflets and booklets on legal issues, bringing relevant LSPs to chambers/trade associations for consultation and awareness of SMEs, creation and management of web portals to facilitate online consultations etc.

Apart from these, LSPs may also take certain actions to promote their SME specific services. These initiatives may include developing SME attractive cost effective service packages, promotion of service packages through SMS and social media marketing, increased networking with SME development organisations, establishing web based platforms for extending online legal advice while also marketing their services, offering free and or subsidised legal consultation to individual SMEs in collaboration with SMEDA, chambers of commerce and trade associations.

The writer works with Small & Medium Enterprises Development Authority (SMEDA) as Manager Legal Services and can be accessed at shaheen@smeda.org.pk