As 2016 dawns, now is a good time to reflect on your business plans for the year ahead. Make some time to consider these legal risks and how you would manage them. A modest investment now could pay handsome dividends later.
- Get your company structure in order
Are you using the optimum legal format for your enterprise? Have circumstances changed so that you need to revisit this? For example, if you are a sole trader or partnership taking on more liabilities and risk, is now a good time to incorporate and benefit from limited liability status? If you plan to raise external funding, will funders require you to adopt a specific legal structure, such as a company limited by shares or a community interest company with an ‘asset lock’? Are you making the most of any tax reliefs available, for example by adopting charitable status? Is your company’s constitution in order – is it clear who is responsible for what, who can spend the organisation’s money and up to what limit, who is authorised to enter into contracts or employ staff? If you are working with new partners or external investors, have you got a shareholders’ or partnership agreement in place which protects your position properly, sets out clearly what is expected of each party, how the risks and rewards will be shared and how any falling out would be dealt with? Download our free guide to legal structures here for more tips.
- Understand the implications of taking on business premises
If you are planning to take on business premises this year, make sure you understand the risks involved. Taking on a long term inflexible lease can be a real millstone around your neck. Are there more flexible arrangements you could use instead, such as an informal licence, sharing space with others or the increasingly popular shared business centres for start-ups? If you do decide to take the plunge on a lease, understand the implications. Is the rent realistic and affordable, how will it increase during the term of the lease? Insurance and repairs: landlords like to get tenants to sign up to ‘full repairing and insuring’ leases – which means you will be responsible for the costs of insuring the building as well as the rent; you will also be responsible for carrying out works to put the property into a good state of repair at the end (known as ‘dilapidations’) and paying a service charge to cover external repairs, cleaning and building services. These can be very significant costs to budget for. Consider limiting your liability at the outset by having a schedule of condition prepared. Get proper professional advice before you sign anything!
- Get your contract terms in order
Effective and enforceable contracts are the lifeblood of any successful enterprise. Contracts with customers, service users, suppliers, employees, landlords, business partners and insurers all make up the payment flows, risk allocation and risk management tools which allow an enterprise to manage its cash flow, generate surpluses and remain solvent. Properly drafted contracts which are clear and unambiguous are a vital protection for your organisation and can really help to avoid costly disputes if things go wrong. Consider getting your contracts reviewed and put into shape by a professional. Find out more.
- Are you up to date with regulations that apply to your business?
The scope and burden of regulations affecting business and non-profits just seems to grow exponentially, especially in highly regulated sectors like health and social care, education, financial and professional services. The default knee-jerk response of politicians to any problem or scandal, however isolated, seems to be to pass new laws, putting more responsibilities and penalties on managers for non-compliance. For example, last year saw the introduction of new laws affecting consumer contracts, a new minimum living wage starting in April 2016, new rules affecting zero hours contracts and tough new approach to data protection violations. It can be difficult for small and medium sized enterprises to keep up with all the developments and stay compliant. One solution is to sign up to a subscription service like ours, designed to provide peace of mind. We can help you to stay focused on running your business while we take care of the paperwork, updating policies, contracts and providing on-call support with cost certainty.
- Protect your business ideas and confirm ownership
Have you taken all the necessary steps to protect the names, logos and goodwill associated with your enterprise? These can be a real source of competitive advantage and enhance the value of your business. Patents (which protect mechanical devices, industrial processes and chemical compounds), trademarks (which protect distinctive slogans, logos, domain names and sounds) and designs, can all be registered with the UK Intellectual Property Office. The protection gives you the right to stop others from using them without permission. Other unregistered rights can arise automatically, such as copyright (which protects literary, dramatic, musical and artistic works, sound recordings, films and broadcasts), unregistered trademarks and confidential information (such as method statements or processes). If you are discussing confidential plans with a potential business partner, do you routinely get them to sign a non-disclosure agreement to stop them poaching your ideas? Is it clear in your contracts with staff and suppliers who will own the rights to any inventions or creations?
- Control your debts
Good cash flow management is essential to any business. It is important to know the precise identity of the customer with whom you are dealing and ideally perform a credit reference check on them. Mistakes in the name or address of a customer may prevent you from recovering a debt from them later. Get proper written terms of business in place and consider setting credit limits for individual customers. If the customer’s credit looks doubtful, consider taking additional security, such as payment in advance or a guarantee from a third party. Late Payment legislation was introduced in 1998 to encourage a culture of prompt payment. Evidence suggests that late payments are a major continuing problem. A survey by the Federation of Small Business in 2015 found that 43 per cent of firms have waited over 90 days beyond the agreed payment date before they got the money they were owed. New rules were brought in during 2013, but the level of awareness about how to use the rules still appears to be low. Businesses may fear upsetting their customers and jeopardising future business, but used wisely the rules can really help your business. Find out more.
- Understand your duties as an employer
It is vital to understand your responsibilities when taking on employees. Most problems in the workplace stem from poor communication, lack of clarity about roles or expectations of new recruits, or failing to tackle performance issues when they arise. With payroll costs typically averaging 60%-75% of total costs for most enterprises, this is a high risk area worthy of intensive attention. Time spent getting your documentation, contracts, policies and procedures in order will pay dividends in the long-run. Although the introduction of employment tribunal fees has deterred some legal claims, an employment dispute can be damaging for morale, costly in terms of time and resources and can have a very negative impact on an organisation’s reputation, including implications when bidding for external contracts. Time spent getting your paperwork in order could be a wise investment to avoid problems and expense further down the line. Don’t put off that appraisal meeting or employee paperwork any longer! See more on this.
- Manage disputes effectively
Disputes are almost inevitable at some point in a business relationship. Various techniques can be used to resolve them. The cost of taking a case to court has risen dramatically, not least because of the increase in court fees brought in during 2015. For disputes worth over £10,000 the court fee can be 5% of the value of the claim just to issue the claim form (for example a claim for a debt of £15,000 would incur a fee of £750, plus an additional fee of up to £1,000 payable for the hearing). Not surprisingly this is prompting a strong interest in alternative forms of resolving disputes, such as ombudsmen, adjudication, expert determination and mediation. Many trade associations now offer a mediation scheme for their members, and we are seeing the growth of private online dispute resolution forums for resolving disputes, such as resolver.co.uk or modria.com. Consider amending your terms of business to require any disputes to be referred to a less costly swifter process, rather than the courts. Remember also that disputes are often won or lost by the quality of evidence available. Make sure you keep good records of contract documents, letters, emails and notes of phone calls and store them securely for at least six years after the relationship ends. Contemporaneous notes of meetings or calls can hold great weight with a judge.
- Be careful with your data
As we move inexorably into a digital world, the amount of data stored and transferred concerning operations, customers, suppliers and employees is increasing exponentially. The complexity of modern business relationships, multiple interfaces between networks, cloud-based applications and storage, social media platforms and electronic devices, as well increasingly sophisticated fraudsters and hackers, means the potential for personal data to be lost or misused is growing all the time. At the same time regulators are adopting a tougher enforcement approach towards data breaches and unauthorised use of data, such as unsolicited marketing calls, texts and emails. For example, the organisers of Parklife Festival in Manchester were last year fined £70,000 for sending unsolicited text messages.
In October 2015 TalkTalk suffered massive adverse publicity when it revealed that the data of up to 4 million customers may have been hacked. The charity British Pregnancy Advisory Service was fined £200,000 when it website was hacked and sensitive details of service users compromised. If you handle personal information, you will most likely need to register as a data controller with the ICO. Registration costs £35 per year and can be completed online. Failure to notify or renew a notification when you are not exempt from notifying is a criminal offence, punishable by a fine of up to £5,000. You also need to comply as a minimum with the eight data protection principles.
Take extra care if you are planning to sell or pass on your customer lists to third parties – Pharmacy2U Limited was fined £130,000 in 2015 for passing on its customer lists without consent from customers. It is important to get the right ‘opt in’ consent from customers and service users at the first point of contact with them, either through website forms, on paper or over the telephone.
10. Get your policies in order
A full suite of policies may be your first line of defence against potential problems with employees or regulatory action. You cannot possibly have eyes and ears in very corner of your business, but you can set out clearly what is expected of your staff, suppliers and partners. Policies should cover every aspect of your business, such as health and safety, prevention of discrimination and harassment, environmental standards, social media usage, data handling, sickness absence and redundancy. If there is an accident or a claim your policies can help to demonstrate that management took all reasonable steps to avoid causing harm. Make sure staff and suppliers are made aware of the policies when first joining and refresh them annually.
Start 2016 on the right footing by giving some thought as to how to best protect your business against legal risks. Contact us now for a ‘no obligation’ discussion on how we could help. We wish you a happy and prosperous New Year.
Mark Johnson is an experienced solicitor & chartered company secretary. As Principal of Elderflower Legal, he provides a range of friendly fixed price legal and compliance services for SMEs, charities, social enterprises, academy trusts and local authority trading companies, helping them to flourish. Please get in touch firstname.lastname@example.org or 01625 260577.
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