Wednesday March 28, 2012 at 10:00am
When starting a new business the legal aspects are often the ones that get forgotten, or at best sorted out with reluctance. As your business grows and becomes more successful the risks involved can become greater. Still, worrying about the legal side of things may not take number one priority.
I’ve put together these tips for small business owners, they cover the essentials you should consider from a legal perspective and will hopefully keep you out of the hands of my dispute management colleagues (sorry guys) who tell me they get a large proportion of their work because business owners fail to set their business up with the right legal protection in place.
- Minimise the risk to your personal finances
The way you structure your business will help you to control the personal financial risks you take. If you are starting a business with one or more people, you can choose to operate as a partnership, limited liability partnership or limited company. Each of these can be properly legally constituted and provide degrees of protection.
It is worth remembering that in a partnership, all partners are jointly liable for debts. It’s also worth bearing in mind that unless you have a formal agreement in place about the amount each party invests in the business, whether in terms of money or time, you could find there are disagreements and misunderstandings along the way about how these differentials should be rewarded or otherwise.
- Put everything in writing
Make sure that all your business deals and agreements are confirmed in writing. If you strike an agreement verbally, get a confirmation in writing as anything that is agreed verbally is often difficult, if not impossible, to prove in the future if problems arise.
A written agreement will also protect you from genuine misunderstandings which might otherwise ruin a good business relationship as well as less scrupulous characters who change their minds or give you a different story after the event.
- Be clear about your terms of business
Make sure all your customers are aware of your terms and conditions and that you explain or provide your terms of business at the right time.
Without written terms and conditions of business you run the risk of not getting paid in a timely fashion or at all, in some cases. You are also more prone to disputes about the product or service you have provided.
Unless terms of business are accepted at the start of your business relationship, when the order is placed, for example, they may be unenforceable. So T&Cs on the reverse of an invoice are usually no good to you at all.
There are more details on this point in Can you rely on your terms of business to provide legal protection?
- Avoid expensive mistakes
One area where many new businesses fall down is in the area of protecting their ideas and intellectual property as well as keeping information about their business confidential. Mistakes in these areas can be catastrophic for businesses in certain key sectors like consultancy, software development and new technology.
Make sure you firstly consider things like your business name, product names and any potential trade mark issues. And before discussing your business ideas, new products or services or even which customers you are targeting, consider the use of a confidentiality agreement.
- Take advice early on
In law, as in health, prevention is always better than cure. It is certainly often cheaper and easier to deal with in any event.
Set your business up correctly, make sure you have agreements in place with any fellow directors, with employees, contractors, suppliers and customers and you will certainly be in a strong position. Couple this with some basic procedures for how you transact with new customers and hopefully you won’t need to deal with my colleagues in our dispute management team.
Commercial Solicitor, Birmingham
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.