RUNNING A SMALL BUSINESS; MINIMISING THE LEGAL RISKS

Any business is a series of relationships, all of which can give rise to potential areas of conflict and the risk of legal proceedings. Involvement in one legal suit can be enough, in some circumstances, to sink a business. There are some ways a small business can minimise its risks. It helps to begin at the beginning by looking at your own structure and your internal procedures. If you operate as a company have you a shareholder’s deed in place? A Shareholder’s deed is a fundamental tool to provide a mechanism to resolve disputes, to define events which trigger a right of buy out, to provide a basis for the valuation of shares if one person is to be bought out and to define what matters are fundamentally important in the running of the business which require consultation and agreement of all shareholders before they can be activated – to name just a few reasons. About the only remedy a court can provide in the event of a disagreement between shareholders is a wind up of the company. Goodbye share capital and all the hard work you have put into the business!! Then there are a few things you can do internally with the storage and recording of information which can help your lawyer when it comes time to go to court. Do all employees keep diaries with notes of important conversations? These are important as the notes can be introduced into evidence. Does someone check all incoming mail and faxes? How are documents filed, both hard copy and electronically? The cost and expense of litigation bears a direct relationship to the quality or lack of it of a client’s method of keeping its records. The poorer the records, the more expense is incurred particularly in commercial disputes. Proper maintenance of records is also fundamentally important for capital gains tax and depreciation records and as well you should always have stored in the one central place all equipment warranties with a written log of all equipment and machinery breakdowns and downtime – particularly important if your business is computer dependent. Then look at your relationships with your employees. Do you have agreements in place, defined job specifications and an appraisal system? Do all employees know what it is they are supposed to do? Are events which give you a right to terminate clearly spelt out, including those events which are agreed to amount to misconduct. Are key important employees the subject of restrictive covenants? Have you considered the impact of the Workplace Relations Act and the ability to enter into workplace agreements as being appropriate to your business? Then you move onto the outside relationships. With your customers, do you have proper credit control procedures before taking on a customer, particularly for large orders? Do you provide for personal guarantees in a standard format? Do your invoices have appropriate reservation of title clauses? With your advertising and promotional literature do you have any exposures for information in there which unintentionally may be misleading – the impact of the Fair Trading and Trade Practices legislation needs to be considered. Then there are all the compliance issues; Payroll tax, Workers compensation, Superannuation, Business Names Act compliance, Corporations Law, Licensing, Local Government, product liability etc. Last of all are the relationships with suppliers, service providers, and financiers. This may involve an analysis of lease agreements, distribution agreements, supplier arrangements, compliance with requirements under lender documentation …. the list goes on and on. As Mal Fraser said, "life was not meant to be easy", and life in business now certainly is not. The above are just some issues which arise in running a business. Of course there are many many more and quite often what we see at Gells is the tail end of a problem which by the time it has reached us has become irredeemable and ends up in court. When it all could have been avoided. Life can be made easier, however, with some help from Gells. We can assist you if you want a risk check of your business. In most cases, something is found which has resulted in the client either reducing a risk considerably or making some saving not even contemplated. This will then lead into a strategy being put into place for the future management of risk for our business. You may then wish to engage us on an ongoing basis at a very cost effective rate to take care of your business legal problems and to keep the risk to a minimum – a kind of part time lawyer on the job to act as a full time negotiator! If you want further information about having a risk check of your business, or to find out how we can help you in a proactive way with your business, call Peter Gell (peterg@gells.com.au) or Maria Townsend (mariat@ gells.com.au) at Gells.

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