Not every small business owner has the time to think through legal issues that could make or break their business. However, there are some important legal tips that every business owner should be aware of to avoid time consuming and expensive issues down the track. To assist the time poor, we have put together 10 legal tips to help small business mitigate business risk and achieve their commercial goals.
Below are the Top 3 legal tips. If you would like to access the Top 10 please click download the full article here.
1. Agreements - If it’s important to your business, put it in writing!
What - Businesses enter into contracts all the time whether they are spoken or written - buying something, selling something, online or in-person. If a transaction or business venture is really important, put it in writing, using a contract.
Why - A handshake may work in theory, but over time things become distorted, emotions cloud facts, and people forget what was agreed.
Many disputes can be avoided or at least mitigated by good communication upfront, and that includes a good contract that states what is being delivered or performed, by who, when, how much and to what standard.
And if things don’t turn out as planned, there is a pre-agreed way to deal with it in the contract and preserve the commercial relationship.
When - As a general rule a contract is essential for longer relationships and non-negotiable when (1) entering a business venture with an investment partner such as a partnership (2) key customer and supply arrangements (3) Leases (4) Employing staff (5) Business sales.
Handy Hint - A well drafted contract is like an insurance policy. It protects and prevents against future commercial disputes. Pay now or pay a lot more later!
2. Brand protection - is your brand crucial to your business identity? Then trade mark it!
What - Is your brand essential for your business? If the answer is yes, have you considered registering a trade mark? Your trade mark, often called a brand, is your identity. It’s the way you show your customers who you are. A trade mark could be a word (in a plain font or a different font), phrase, logo, picture or combination of these.
Why worry? - A common misconception is that a trade mark is the same thing as a registered business name, registered company name or a domain name. It is not. A business or company name and a domain name are not enough to completely protect your brand (which is important if your name or logo is crucial to your business).
So what? - A trade mark is a business asset that you can sell. Take advantage. On the flip side, a worse case scenario might be the owner of a trade mark can legally stop you from using your business name on packaging, advertising etc. Having to rebrand all your marketing materials can be a costly exercise.
3. Asset protection - what do you hold in your own name? Don’t bet the family home!
What - are you an ‘at risk’ business owner holding valuable assets in your own name?
Asset protection means protecting your valuable assets from being taken by a third party to pay a debt (such as the family home, an investment property or shares).
The general principle behind asset protection is that any assets that are not in your personal name or control and which you have no legal or equitable rights to cannot be used to meet claims of lenders, trustees in bankruptcy or even spouses in family law disputes.
So what? - Failure to separate legal ownership of business assets from individual assets can unnecessarily expose those assets to a claim which could have been avoided.
Everyone’s circumstances are different but, if appropriate, one could consider the use of a discretionary trust (i.e. family trust) to hold assets to protect those assets from a claim because the beneficiary at law does not have an interest in the assets of the trust.
Alternatively, if your business uses a company structure, consider using a dual company structure to separate your business's major assets from the operational company that conducts the business and enters contracts with clients and suppliers and employs people (and therefore is ‘at risk’).
Handy hint - Make sure your asset protection strategy takes into account any guarantees that you may have provided (see Tip 6).