10 Legal Facts Every Business Owner Should Know
Entrepreneurs and small to medium size business owners can often find themselves covering all sorts of tasks and functions. Bookkeeping, stock checking, ordering and procurement, human resources, payroll, negotiation and contract drafting all being additional tasks that have to be covered before doing the job.
Legal and HR issues are no different and with all this in mind we’ve put together a basic list of the top legal issues any business owner should be aware of.
We hope these help you avoid making a mistake or becoming involved in a misunderstanding that could end in a lengthy courtroom battle.
- A contract doesn’t need to be in writing to be binding.
A verbal contract is equally valid in law. If there is nothing in writing the difficulty is usually in proving the terms of the contract and what was actually agreed, but nevertheless it is legally sound for an agreement not to be set out in writing. A contract is formed when there is an offer, acceptance, an intention to create legal relations and where the terms are sufficiently certain.
- Employing a member of staff?
Think about what will happen if they leave. If it is drafted carefully a contract of employment can lawfully prevent that person from working for a competitor or for key customers. You also own the data of your business and it is confidential. You are entitled to protect confidential data such as customer or supplier lists. These clauses have to be carefully drafted, but business owners should put a high value on protecting their business from being damaged when people leave.
- ‘T&C’s’ means terms and conditions.
A term or a condition in a contract is basically something you agreeing to do or not to do. T&C’s therefore practically means ‘these are all your rights and obligations under this contract’. T&C’s are incredibly important and provide a safety net that should help you cover key liabilities and risks. Sometimes one party can send one set of T&C’s and then you send your own T&C’s. Sending them once (‘fire and forget’) isn’t enough. It is usually the last set of T&C’s that is valid so if you send yours and someone replies with their own set of T&C’s, make sure you are clear on which set will actually apply as the usual rule is the final shot applies.
- Business to business (‘B2B’) contracts do not always have the same statutory protection as B2C contracts. With B2B contracts the obligation is on both parties to read, know and understand, what you are signing. In some B2B contracts the buyer can be treated as a consumer. There is lots of consumer protection legislation that can apply including but not limited to the Unfair Contract Terms Act 1977 (‘UCTA’) and the Consumer Rights Act 2015. For example the Consumer Protection (Distance Selling) Regulations 2000 confirm that where there is no face to face meeting a consumer has 14 days to cancel their instructions or order, this is commonly known as a ‘cooling off’ period. This doesn’t apply to B2B contracts. Read carefully before signing.
- In the case of an unpaid invoice you usually have 6 years from the date the payment was due but was not paid to issue a claim in the courts. If you leave it too long a claim will become time barred. It is estimated that £30 billion is currently owed to small businesses in the UK, don’t let your aged debts accrue and be part of the untold millions that are written off as bad debts. You can use Money Claims Online (‘MCOL’) to issue claims yourself but if you get it wrong you might lose on a technicality and end up wasting the court fee. Specialist litigation solicitors who offer a fixed fee, or who work on a percentage or no win, no fee basis are best placed to assist you. Beware of people offering fixed fee services as some do not cover you for everything. In some cases they are giving you a price for an undefended claim which is about 1/20 of the work involved in a defended claim.
- Where a B2B invoice is unpaid you can also claim statutory compensation. If the unpaid invoice is for less than £1000 the statutory compensation is £40. Where the unpaid invoice is more than £1000 you can recover compensation of £70 per invoice. Where there is nothing agreed in the contract you can also claim statutory interest at 8% above the Bank of England Base Rate. Small but useful sums you should consider including if you have any unpaid debts.
- A limited company structure offers some protection and limited liability. Most of the time. A limited company is a legal person in its own right. The company can sue and be sued. However Directors still owe duties to the company so if money is taken out improperly the Director can potentially still be held personally liable.
- Always take the time to establish precisely who you are dealing with.
‘Delicious Cakes’ is not a legal entity. If you deliver anything to ‘Delicious Cakes’ you may not get paid and may not know who to pursue. In this example ‘Delicious Cakes’ cannot sue or be sued and you may not know who you are dealing with. ‘Delicious Cakes Limited’ is a legal person. ‘Delicious Cakes LLP’ can also be sued. ‘Delicious Cakes’ is probably more accurately described as Mr or Mrs X trading as ‘Delicious Cakes’. In that case you would need to sue Mr or Mrs X trading as ‘Delicious Cakes’. If you don’t know the legal person you are dealing with- ask!
- If offering credit terms to a limited company think about asking for a personal guarantee (‘PG’). How exposed will your business be if the limited company goes under? Obtaining a PG from a Director evidences that the person best placed to know the financial security of their business (the Director) is also backing the company to pay you. If a Director of the company won’t provide a PG is that a warning sign that there is something wrong or that there is a greater risk of non-payment? Don’t be the person whose business completes work and then doesn’t get paid. A personal guarantee is not binding unless it is in writing.
- Trust your instincts.
Time and again we come across situations where business owners tell us that something didn’t feel right but they went ahead anyway. If you aren’t sure if there is a problem or an issue, speak to an expert to see if there is something you have overlooked or forgotten. Most won’t charge for an initial conversation and it may be all that you need to put your mind at rest or improve your position.