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Our guest contributor this week is Sarah Bartholomeusz, founder and CEO of corporate and business law specialists You Legal. Sarah was the South Australian Telstra Businesswoman of the Year 2015 in the Start-up category. We thank Sarah for permitting us to reproduce her article, the original of which can be found here.
Most business owners recognise that cutting corners will inevitably cost them time and/or money. The same can be said for the legal concerns of your business.
Small shortcuts or simply overlooking details can have serious legal consequences. Seeking professional advice from the beginning will help you avoid the most common mistakes and save time and money.
Here are seven mistakes most commonly made by our clients, and how to avoid them*.
1. Not properly protecting intellectual property
Many business owners mistakenly believe that by registering their business name, they own the intellectual property rights to that name. Sadly, this is not the case.
A business name is simply the name under which you conduct your business. Registration with ASIC will not prevent another trader using a similar name.
If you wish to protect your name, logo and brand you must take additional steps to register them as trademarks. A trademark gives you the exclusive right to control your brand, including to sell a license for use or prevent its unauthorised use.
2. Not effectively articulating business relationships
Most of us are well aware of how easily misunderstandings and unmet expectations cause problems within relationships. These same principles apply to business relationships.
Clearly written terms and conditions, supply agreements and client agreements serve not only to protect your contractual rights, but to clearly articulate and define the nature of your relationship and the role each party plays.
3. Not having an arrangement in writing between business partners
Partnership Agreements or Shareholders Agreements are not strictly necessary and may seem like an unnecessary cost, particularly during the honeymoon phase of a business relationship.
A Partnership Agreement or Shareholders Agreement is not just about dispute resolution. Creating an agreement will give you the opportunity to discuss exactly what your expectations are.
They provide an opportunity to define a broad range of issues including investment amounts, profit (or loss) distribution, how the business is to be managed, resignation or retirement and division of labour.
This process of clarification will enable you to begin your business relationship with mutual understanding and common goals.
Of course, in the unfortunate event there is a dispute, the Agreement will operate to help you navigate the issue.
4. Confidentiality agreements, or lack thereof
The success of most business relationships relies in part on the free flow of relevant information. In some cases, this information may be highly valuable and/or highly sensitive.
A confidentiality agreement should at the very least clearly define what information is confidential.
It could also contain clauses relating to authorised use, storage requirements and how long it must remain confidential following the termination of your consultancy or employment relationship.
5. Restraint of trade clauses
One of the biggest mistake in employment contracts relates to restraint of trade clauses.
Most restraint of trade clauses are ultimately found to be unenforceable because they are drafted too broadly and are outside the scope of what is required to protect the business interests of the employer. A restraint of trade clause must be drafted carefully, with the individual employee and business in mind. If you require a restraint of trade clause in your employment contract seek the advice of a lawyer. An unenforceable clause is no clause at all.
6. Business strategy and legal consequences of growth
Business owners and entrepreneurs are, quite rightly so, intently focused on driving their business to success. It is important to remember however, that each step in the growth process creates additional considerations, and this includes the legal concerns of your business.
A small change in strategy or operation can have legal consequences.
If, for example, you change suppliers for a product and now source goods from overseas you may need to consider the deemed manufacturer provisions of the competition and consumer law.
If your company achieves $3million in turnover (congratulations!) you will trigger the Privacy Legislation and your company will need to implement policies and procedures to comply.
If you intend to take your company to an IPO, is it appropriately structured? Do you meet the governance requirements?
Companies who don’t take the time to consider the legal consequences of growth can end up spending a lot of money paying fines, and a lot of time implementing legal compliance procedures retrospectively.
7. Protection from client insolvency
Most business operators have it well drummed into them to keep a keen eye on the financial health of their business. What many fail to consider is the impact of one of their clients or suppliers going bust may have on the business.
If a client becomes insolvent and you do not have correct credit arrangement documents in place, or goods you have provided on a retention of title or consignment basis are not correctly registered on the Personal Properties Securities Register, you will generally be considered an ordinary unsecured creditor and will be one of the last in line to be paid.
At You Legal we can help you avoid these mistakes, our passion for the law is helping people Future-Proof their businesses, feel free to get in touch to find out how we can assist you.
What should I do next?
Contact us if you would like further legal advice on any issue that you need to be clear for Your Business. Our lawyers at You Legal will be happy to assist you in whatever way we can.
*This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.
