Getting the legalities right in your small business can save you tens of thousands of…
Want to Avoid Wasting Money on Unnecessary Legal Fees?
I see Small Businesses wasting literally tens of thousands of dollars in legal fees every year, due to making easily avoidable legal mistakes.
In an earlier Smallville article, I discussed five tips for avoiding wasting money on unnecessary legal fees. This blog contains another five tips:
1. Collaborations/business partners.
People say that you should never go into business with family or friends. My view is different. I believe that you should never go into business with family or friends (or for that matter with anyone) unless you have a written agreement first.
One of the most effective ways to avoid future potential disputes in a business relationship or a business collaboration is to have a clear written agreement. This should set out the expectations of all parties, including what will happen if things go wrong.
2. Terms and conditions.
I am constantly amazed at how many Small Businesses do not bother with terms and conditions. Many simply start providing goods and services, without any written terms at all. Others have terms that they have copied off the internet (which may, in fact, put them in a worse position than having no terms at all, as laws in different jurisdictions vary, even from state to state).
Even among those with terms and conditions, there is a high rate of terms which are unenforceable for various reasons. One of the most common being simply putting terms on a business website and expecting people who interact with that website or business to be bound by them.
Simply putting your terms on your website and hoping that your customers will agree to them, is not enough in most countries.
Many Small Businesses start up from home. Around 90% of those, have done no research as to what regulations might apply to them. Each city council has different regulations for businesses from home, and the local websites should be a good starting point for finding out what regulations might cover your small business. For example, one Australian city council limits employees at home-based businesses, between the hours of 8.30 am and 1 pm!
In addition to local regulations, it is important to know what state and federal laws and regulations might apply. Falling foul of regulations may lead to massive fines and in some cases even criminal conviction, as well as the shutting down of the Small Business.
A client inadvertently breached city council regulations and ended up being closed down and facing hefty fines. Unfortunately for him, when he started the business, he was within the regulations. He did not realise that his property had been rezoned, and he had become non-compliant when that happened several years before the city council became aware of his activities.
4. Avoid accidental employees.
Each country that you operate in will have different laws relating to whether a worker amounts to an employee or a contractor. In Australia, there are very strict laws governing working relationships. Even if both the worker and the Small Business owner want the worker to be a contractor, this is not permitted if the worker falls within the legal definition of an employee.
In around 85% of cases where we are asked to draft a contractor agreement, it turns out that the worker is actually legally defined as an employee, opening businesses up to hefty fines and other penalties. I have created a free eBook called Accidental Employee if you would like more information regarding this.
5. Accidental patent or design infringement.
If you are an importer or manufacturer of goods, then it is important to be alert for potential patent or registered design infringement issues.
A client recently began importing goods that he thought were similar to something he had seen sold in Coles and therefore thought it was safe. It turned out that he was potentially infringing several patents and registered designs. That could have bankrupted his business. Lucky for him, a settlement was negotiated, but the lesson is to be careful and preferably obtain a freedom to operate search by an experienced patent attorney first.
Sadly, some Small Business owners find out about legal essentials too late and end up in bankruptcy. Some people are worried about how much legal advice might cost. In my view, the better question is, “How much might it cost you if you don’t get proper legal advice when starting out?”
The ‘value’ of good legal advice early on is that it can save tens of thousands of dollars in wasted legal fees down the track.
(Please note that this blog is provided for general informational purposes only. Each legal situation differs. Reading this blog cannot replace obtaining specific legal advice. We recommend that you obtain legal advice for your specific situation.)
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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