Legal Issues and the Small Business Part I

24 July 2020

Legal Issues and the Small Business – Part I

Common Legal Challenges

Running a business can be both fun and troublesome at the same time. 
Owners of small businesses need to have a wide and varied skill set – a sort of jack of all trades combined with the required specialism of their trade that was the reason to venture into business in the first place.

However – although not for want of trying, business owners cannot excel at everything. Sometimes, small organisations find it beneficial to obtain third party support in areas such as HR, payroll, and Health & Safety.

There are many legal issues which businesses have to face by themselves and which are generally not outsourced. The regular legal areas of housekeeping are to name a few,

Ensuring that documents up to date, e.g. registrations and contracts
Making sure that policies and risk assessments are relevant to both your operations and legislation
Keeping on top of Health & Safety requirements and training
Collecting and sorting all payroll data to actually pay the workers.

Other legal challenges may not be so routine and regular, but their existence can have an incredible say in how successful your business is likely to be and simply cannot be ignored no matter how unsavoury they might be to address. Some of these are now mentioned in no particular order.

Improperly drafted contracts

It matters little who actually draft these but if you sign a defective contract, or one that you have not properly read or understood, you are committing your business to a potentially unhealthy and damaging legal relationship. Such might lose you money and reputation and be difficult to exit. The same applies whether they are between businesses and clients or between business and their suppliers. Always know what the contract means and never be rushed into signing.

Furthermore, always ensure that any trading is reflected by an appropriate supplier contract. This acts as insurance against errors happening and will be good evidence of the trade, detailing price, and other conditions.

Employee Issues and Disputes

Employees can easily be the biggest strength of any business. They can also be an immense legal liability if they are not managed correctly and if the law relating to employment etc is not followed properly. It is so especially important to establish proper employment contracts and HR policies when starting out, even if you only have a handful of employees at the beginning. 
Importantly you need,

An employment contract setting out the respective rights and obligations of employee and employer.
Appropriate policies covering all HR and related working and environmental issues. 
A workplace which is safe and compliant with all equality requirements and compliant with Health & Safety needs.

Disagreements between shareholders/partners

I have commented on this topic in previous blogs but make no apology for including it once again. We have had so many requests for help in this area – all because no shareholder agreement  or partnership agreement was in place at the outset.

When you start a business with a friend, family member or colleague, you probably have shared ideals and ideas. As time passes, different owners (shareholders/partners/proprietors) will have different ideas and understanding as to the way forward. Some may wish to leave the business. Some may wish to retire through poor health. Some may die. Some may wish to buy you out!

It is so easy not to think about this when you start trading. After all – you have a great idea and you trust each other. Regardless of this sentiment you should always have a shareholder’s agreement or partnership agreement. These are absolutely essential legal documents that define the rights and obligations of each owner, define how the company is going to be managed and operated, define who takes the important business decisions and what will happen if an owner dies or wants to leave. Without this type of document, a business can flounder and can be paralysed in the event of  differences of opinion between owners.

Intellectual property and trade secrets

Regardless as to the nature of your business, it will have its own unique brand and identity. Your intellectual property will range from your logo to your brand colours, business name and any quirks associated to it. This all needs to be protected, often by IP agreements, trademarks, or copyright. Without protection, anyone who wishes to re-use your IP, distribute it, or claim it as their own can do so often without legal repercussions. It tends to be the small businesses who are particularly vulnerable in such cases, because they are targeted by larger businesses. It is worth noting that IP disputes can be horribly expensive and take may years to resolve.

Staying compliant

Depending on the nature of your business, there will inevitably be degrees of required compliance. Never fall foul of a regulator – there will only ever be one winner. The ultimate sanction of a regulator is an order closing you down! Other sanctions include improvement orders, fines, and embarrassing publicity. Some compliance can be straightforward e.g. the implementation of a Data Protection Policy and ICO registration will assist with the compliance requirements of data protection if you control or process personal data. The implementation of a Health & Safety Policy is a starter point for compliance with Health & Safety regulations.

The above is reflective of a number of business requirements but is not exhaustive. Depending on the nature of your business, there will inevitably be other areas of legal concern.

Next week in Part II, we will be helping to understand the ingredients of an employment contract and why all employers should use them.

John Davies
20th July 2020

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