evading legal loops in the market

How Small Businesses can Evade Legal Loops in the Market.


Small businesses are always the victims when major regulatory measures are done by the government. Although major amendments are done in the favor of their existence in a highly competitive market, some of them are often theoretical and not impacting. As an economy the need for proper regulatory measures is on-demand, regulations are indispensable to the proper function of economies and societies. They create the “rules of the game” for citizens, businesses, government, and civil society. They underpin markets, protect the rights and safety of citizens and ensure the delivery of public goods and services. Let’s have a look at it.


Understanding regulation to businesses

Regulation is a major way in which government influences the Kenyan and entire East Africa market economy. The scope of government regulations is vast and reaches all sectors of the economy and all aspects of our daily lives. The government regulates business for several reasons.

First is public safety and welfare. Many small businesses are regularly reviewed and overseen because their activities if they go awry, can have significant harmful effects on human health, financial well-being, or community structure.

Also Read:

  1. Why MSMEs are still winning in the Kenyan Economy.
  2. Advice for small businesses to succeed in the new financial year.
  3.  “SMEs are still prime but not yet protected” – Expert says.

The second reason is the protection of industry. Many regulations are in place to protect those who have developed their business correctly; licensing, permits, and inspections by the government weed out undesirables or criminal activities that undercut honest industries.

The third reason is revenue generation. Many programs require certification or licensing that businesses must pay for in order to operate. The funds collected go to pay for the government programs that perform the oversight of the particular industry. However, in many cases, some portion of revenue is also sidetracked to general government purposes and is, effectively, a tax.

Legal and Regulatory Issues affecting Businesses in Kenya

As an ordinary entrepreneur, launching a business is all about money. Priority considerations are seed capital, marketing budget, and various avenues that a business will engage in to generate revenue. According to Business Today, in the midst of this entire chase for revenues, one key item that is often overlooked with grave consequences is the legal issue/exposure that surrounds them. Of what importance is it to launch and grow a business if at one go all that hard work can go down the drain on account of legal exposure in one way or another?

The following are some of the common legal issues startup businesses or small and medium enterprises should consider and how to solve them;

  1. Business structuring

For many, a business person has no layout skills. One is often likely to start as a sole proprietorship business and plan to revisit the structure once the business grows or in the wake of YAGPO (Youth Access to Government Procurement Opportunities provided by the constitution of Kenya, 2010) and other opportunities register a business, law firm or any other venture. It may seem to be a casual issue but there are various instances where this has been detrimental. What happens when an investor comes on board? How does the founder negotiate the terms? It is important to have this clearly defined as early as possible based on the industry one is operating in. This should be one of the key considerations when drawing up the business plan. Different business structures have different legal as well as tax implications and it is imperative that this is undertaken with utmost sobriety.

  1. Business foundation documentation

At times you have decided on a business structure, great; then comes the other limb of documentation. If it’s a company what is the shareholding structure like? Who gets what percentage and why? What are the responsibilities of each party? How are decisions to be made and by whom? These questions are often ignored especially when founders of a business have a common history together be it as friends; former schoolmates’.It has regularly been a bone of contention when the relationship between the partners goes sour for whatever reasons or when key business decisions have to be undertaken. Have the documentation right from the onset.

  1. Business compliance

The next thing is to figure out what laws and/regulations you need to comply with within your line of business. You don’t want to be in a hustle with authorities over compliance issues. Inquire as to what you will need to comply with and get it over with. It saves you the headache of running your business looking over your shoulder every time and enables you to concentrate on what is actually important: running your business.

  1. Employment Regulatory.

Immediately you have done all the initial compliance you may require a hand or two to help with running a few operations. It is common practice to get into an oral agreement with another party and have them begin working for you. Nonetheless what happens when the said person doesn’t own up to the duties and responsibilities you agreed on? What if they suddenly want more money outside what was earlier agreed upon?

What fallback do you have to prove what the terms were? How do you terminate the agreement? It is imperative for any sound business person to have any employees they bring on board to have a written contract on what is expected of both the employer and employee. This also extends to any specialists or experts you engage with. Ensure everything is in writing and terms are clearly defined.

  1. Non-disclosure agreements/Confidentiality agreements

This is quite evident among most businesses. As a business person, one of your key tools is information which, in the hands or ears of the wrong party, can mean loss of revenue. For example, you are a marketing professional and have come up with a unique strategy to increase sales or market a certain product/service and want to pitch the idea to a company. You proceed to arrange a meeting and explain how you can enhance their revenue streams in Xyz way. After the meeting, they go-ahead to implement it without you. You will certainly feel duped, won’t you?

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  1. How SMEs can avoid being caught up by the ‘Tentacles of CRB’.
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  3. 8 Tips for a Successful Family Business.     


What if the entity had an agreement that precluded them from sharing this information for a certain time frame? This may have gone a long way to protect your ideas. It is important to note that this is not sufficient protection depending on the industry one is operating in and extra-legal protection may be required.

6. Contractual engagements

In the course of every business, one has to deal with suppliers, clients, etc. It is important to also secure such agreements with regard to timelines, payment amounts, and payment modalities. What avenues do you use to seek the resolution of a dispute?

Make it a habit to capture everything in writing and have all the parties to it execute them. This will be a good practice to have as proof in case any side does not own up to their obligations. Remember, always prepare for the worst-case scenario. What documentation would you need to back you up outside the he-said-she-said situation?

  1. Seek expert advice

Due to the financial pains of starting a business or even in the course of running one we are often cash strapped for any extras that do not generate revenue. While it is prudent to know as much as you can about your business, the laws, and all related information, it is imperative that one seeks the advice of a professional from time to time. Schedule to do this as much as possible it may be quarterly or whichever fashion one may adopt but ensure you are in the know about the legal status of your business, all changes in the law regarding your industry of operation, and the impact on your business.

Mombasa, Kenya.

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