When you are running a business, legal documentation can easily fall towards the bottom of the priority list.
Winning customers, managing cash flow, recruiting people and delivering your product or service naturally demand attention. Contracts and legal structures can sometimes be dealt with on the basis that they can be sorted out later.
The difficulty is that “later” is often when a dispute has already arisen.
Putting the right legal foundations in place at an early stage can protect the business, reduce uncertainty and allow everyone involved to understand where they stand.
Who owns the business?
If you are starting a business with someone else, one of the most important questions is how that relationship will work.
When everything is going well, formal agreements may not seem particularly important. Problems tend to arise when circumstances change.
What happens if one owner wants to leave? What happens if the founders disagree about the direction of the business? Can one person sell their interest to somebody else? What happens if additional investment is required?
For a limited company with multiple shareholders, a carefully considered shareholders’ agreement can address many of these issues.
Partnerships and other business structures can require their own agreements.
Having these conversations and documenting the answers while relationships are good is usually much easier than trying to determine what was agreed after a dispute has begun.
Put important commercial relationships in writing
Businesses regularly enter into agreements with customers, suppliers, consultants and other commercial partners.
If the terms are unclear, a disagreement about what was promised can quickly become a commercial dispute.
A properly drafted contract can address important questions such as:
- What goods or services are being provided?
- How and when will payment be made?
- What happens if payment is late?
- What is each party responsible for?
- Are there limits on liability?
- How can the agreement be terminated?
- What happens if something goes wrong?
The appropriate terms will depend on the business and the transaction. Simply copying another company’s contract or using a generic template may not provide the protection your particular business requires.
Terms and conditions matter
For many businesses, their terms and conditions form the basis of hundreds or even thousands of transactions.
It is therefore important that those terms accurately reflect how the business actually operates.
Good terms and conditions should be clear about issues including payment, delivery or performance, cancellation, liability and termination.
Businesses dealing with consumers must also take particular care, as consumer contracts are subject to additional legal requirements and protections.
Protect what makes the business valuable
For many modern businesses, some of their most valuable assets are intangible.
A brand name, logo, software platform, website content, product design or other original work may be central to the value of the company.
Intellectual property rights can include trade marks, copyright, designs and patents.
Businesses should consider what intellectual property they own, whether it is adequately protected and whether contracts with employees, consultants and suppliers clearly deal with ownership.
This can become especially important when attracting investment or preparing to sell a business.
Taking on employees
As a business grows, recruiting employees brings another set of responsibilities.
Employment contracts, pay, working hours, holiday entitlement, workplace policies, discrimination and dismissal all need to be considered.
Clear employment documentation does more than satisfy legal requirements. It can help establish expectations from the beginning and provide a framework for dealing with issues if they arise.
As employment law continues to develop, businesses should also review their contracts and policies periodically rather than assuming documents prepared years ago remain appropriate.
What happens when a business relationship breaks down?
Even businesses with good contracts can find themselves in disputes.
A customer may refuse to pay. A supplier may fail to deliver. Shareholders may disagree. A former employee may take confidential information or a commercial partner may allege that the business has breached its obligations.
The existence of clear, well-drafted agreements can make a considerable difference in these situations.
Instead of beginning with an argument about what the parties originally agreed, there is a written framework against which their respective rights and obligations can be assessed.
Legal advice is not only for when things go wrong
There can be a tendency to contact a solicitor only once a problem has become serious.
For businesses, however, legal advice can be just as valuable in preventing problems.
Reviewing a major contract before it is signed, putting a shareholders’ agreement in place, protecting intellectual property or updating employment documentation may prevent a future dispute from arising at all.
As the business develops, its legal arrangements should develop with it.
How Penerley can help
Whether you are setting up a new venture, growing an established company or dealing with a difficult commercial relationship, getting the legal foundations right can give you greater certainty and allow you to focus on running your business.
Penerley can advise businesses and their owners on commercial agreements, business relationships and disputes, helping you understand both the risks and the practical options available.
If you are starting, growing or restructuring a business, speak to Penerley about putting the right legal framework in place.
