Big Legal Mistakes by Start Up’s/SME’s

When money is tight, the last thing budding entrepreneurs want to focus on is legal details which come at a cost.  As such a lot of basic foundations in setting up a Company correctly can be overlooked, as can other simple legal issues that will put the Company in good stead going forwards.

Here is a list of commonly overlooked issues that if you are reading this article and it all seems worryingly familiar, perhaps this is the right time to address them:

1.       Incorporation – businesses can trade as Partnerships, Sole Traders, or as Limited Companies.  A Limited Company is by far the best option for anybody, since the Company is protected by Limited liability status – in layman’s terms that means that if you are sued, any liability can only be paid out to the extent that the company has assets and is good for the money.  This is unlike a Partnership or a Sole Trader, whereby the successful litigant can come looking at your assets personally.

2.       Get the structure right – how is the Company going to be governed? Are the shares going be held on a majority basis? If not, and matters are simply left on a “good faith” basis, the business can come into a deadlock in the event of a failure to agree on matters.  When problems arise it is often the case that the lack of legal documents can really cause a huge headache.  Directors should have director’s service contracts, and shareholders should have shareholder agreements.  These documents can be complicated, or kept reasonably simple so as a minimum outline duties, obligations, scope of work, and who owns what.

3.       Contracts – this covers a multitude of sins from directors/shareholders as above, through to employees, and general terms and conditions of business with people who you are going to trade with.  Most of work in litigation is primarily based around contracts, in one form or another, be it unreasonable terms and conditions, businesses trading with no contractual terms agreed, or general breaches of contract.  The devil really is in the detail here, any employees who do not have contracts, or if you are trading without decent terms and conditions, then the chances are you are going to be spending money with your Solicitor sooner rather than later.

4.       Documentation – everything should be documented from interviewing prospective employees, negotiating deals with partners, employing staff, through to how you finance the business.  The person who can readily turn to documentation supporting their position often wins the arguments which can arise quite innocently during the course of business.  To have a good discipline  writing things down, confirming matters in correspondence,  contracting on your terms,  etc will make a difference.

5.       Intellectual Property – you need to protect your intellectual property – this is overlooked and more often than not, is reasonably inexpensive to sort out.  Consider your Trademarks, patents and Copyright.

6.       Social Media – this is a necessary evil of modern life and a good robust policy should be in place with employees, which will need to be readily available in the employee handbook.  For those reading this who have not got an Employee Handbook– beware !!   Again something often overlooked, and is simply pennywise, pound foolish.

The above represents a broad spectrum of issues that are commonly seen by us in business.  Whilst they will involve instructing your Solicitor, the cost of sorting matters out correctly from the outset are a lot cheaper than trying to untangle things when they have gone wrong.

Should you have any queries, concerning the above or any other legal issues, please do not hesitate to contact Giles Ward at Milners Solicitors – or 0113 3801 850/07789 401411.

This article was first published in Pest Control News – September 2015. 

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