Avoiding Costly Legal Mistakes As A Start Up Or Growing Business

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When starting a business, and even over the first few years of business, there seems to be ever changing legal, financial and other issues which can arise which business owners need to deal with. This can be both daunting and exciting.

It is therefore understandable why many business owners overlook key legal and compliance issues which can, in some cases, create costly issues further down the line.

This article looks at some of the key factors business owners need to consider and, where appropriate, seek advice on.

  1. Ownership Relations

This is one of the areas that we see overlooked time and again, particularly amongst family and friends. It is important to understand, however, that when you go into business with another person, that relationship is a business relationship and whilst you may have the same goals and ambitions in the short term, over the mid-longer term things may change and this can cause conflict unless it is managed carefully.

It is therefore important that owners in a business document in a formal agreement, normally either a shareholders agreement or partnership agreement, matters such as extracting money from the business, restrictive covenants, duties in the business and what happens if one of the owners wants to leave. These are just some of the matters to consider.

Dealing with disputes between owners of a business can become extremely expensive and often can be avoided if proper contracts are in place from the outset.

  1. Terms of Business

Always ensure that you have documented terms of business in any sector where the transaction does not occur simultaneously. Obviously in a café or shop it would not be necessary to have terms of business but for any business where services or goods are provided over a period of time or where there is a delay in when you get paid, it is imperative that formal contracts are prepared.

Well drafted contracts can provide significant protection in the form of limitations of liability, terms as to when you are due to be paid and sanctions for failure to pay on time. In certain types of contracts, often those involving consumers, it is a legal requirement that contracts contain certain terms and failure to adhere to these requirements can render contracts unenforceable.

  1. Premises

Many business owners will lease premises for their business. It is important that business owners understand the agreement they are entering into as there is not the same level of protection in a commercial lease as there would be in a residential tenancy.

If business owners are not careful they can find themselves in positions where they can be personally liable for extensive costs, repairs and fees such as dilapidations and service charges or they can be tied into long term leases which are not fit for the purpose of the business.

  1. Compliance

Depending on the nature of your business, your business may be subject to a number of strict regulatory or licensing requirements and failure to adhere to these requirements could result in fines or criminal prosecutions.

General compliance requirements are faced by all businesses including obligations as to how they manage data under the General Data Protection Regulations and also managing health and safety risks.

However, some businesses may face more niche regulatory requirements such as licensing around waste management or the provision of certain services or products. Other businesses may require regulation, for instance from the Financial Conduct Authority. These requirements are not always obvious.

  1. Employees

There is significant compliance, legal and tax issues concerning the engagement of employees. To make matters more complex, many of the rules and regulations change frequently, sometimes every 6 months.

As a starting point, businesses must have written employment contracts and preferably a staff handbook detailing key policies. It is often useful to engage a law firm or HR consultant to provide ongoing support in respect of the changes which may affect your business.

Summary

Often there is a temptation or financial need to minimise costs in younger businesses and I have seen business owners who have either not done the above at all or have potentially tried to use downloadable templates or competitor documents without necessarily understanding the issues.

In many cases this often leads to business owners having to spend significant sums of money so as to undo earlier mistakes. The best advice is to simply seek professional advice to ensure that you are protected and understand your needs and obligations.

If you are unsure on any legal matters it is worthwhile speaking to a law firm and seeking to develop a relationship with them for ongoing advice and support.

Authored for AD:VENTURE by: Richard Coulthard – Partner & Head of Corporate, Ison Harrison Solicitors

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