"Years of graft can be undone in just a few weeks, so it's vital to have contingency plans in place."
In the daily battle to keep your business on track it’s easy for planning to slip down the ‘to do’ list. Operating without one eye on the future can be risky and potentially costly - any business adviser will tell you that.
Simple legal steps taken today can help future-proof your business, says commercial law specialist James Pressley from North West law firm Kirwans.
1) Put it in writing
If you own a business with someone without a legal agreement in place, you are at risk. Putting an agreement in writing can prevent heartache, hassle and expense if there is a dispute between you, or one of you wants to leave the business.
2) Screen social media
Post in haste. Repent at leisure. Defamation actions due to Facebook, Twitter, etc, posts are becoming increasingly common. A libel action can cost a business dear on many fronts - reputation, money and time. Some ‘Twibel’ (Twitter libel) cases settled recently have awarded damages of up to £50,000, even though the defamatory tweets were viewed by only a handful of people. Deleting promptly and even apologising does not undo the wrongdoing. Consider a social media strategy and be careful whom you empower with your business’s social media accounts.
3) Crack the code
Passwords and log-in details to business accounts (e.g. social media, online accounting and cloud storage) should be stored safely - but you may wish to consider sharing them in the event of emergency. For instance, have you thought what would happen to your business if you died or suffered a debilitating illness? Terms and conditions for Facebook and other social media platforms can thwart a legal bid by a business colleague or family member to obtain login details in such circumstances.
4) Be careful when leaving a trail
By simply typing your name into an email you could be inadvertently executing an agreement that you didn’t intend to - and then, for example, finding yourself bound to honour the terms of a contract you never intended to sign. Be careful how you respond to emails about agreements, proposals or deals so that potentially costly misunderstandings do not happen.
5) Read the small print
Businesses, especially SMEs, often hire services but do not always scour terms and conditions. For example, your digital developer may state that they own the intellectual property of your website or app, despite you having paid for it. This could cause problems if you want to sell the website or app, or work with a different developer in future. Be sure to check.
6) Consider a Lasting Power of Attorney (LPA)
Setting up a small business, especially a sole tradership, is often a lifeline for redundant workers. More than a million such businesses have started up since 2000, according to latest Government figures. However, an unforeseen health issue, family crisis or other emergency can leave a sole trader or small business owner temporarily incapable of day-to-day control. Years of graft can be undone in just a few weeks. A Lasting Power of Attorney (LPA) for financial or business affairs will appoint people you trust to make decisions on your behalf. These people may be different to those you appoint to make healthcare or personal finance decisions on your behalf.
7) Guard your trade secrets
Current English law means that if you tell someone a secret, for example, a new invention or a prototype, you are protected provided they understand they are supposed to keep it secret. Under a new EU Trade Secrets Directive you will need to have a confidentiality agreement in place instead. For example, if you share an idea for a new computer game with a software developer you will need a confidentiality agreement or risk them developing the idea as their own. The EU directive will come into force before we leave the EU and is likely to remain part of English law.
8) Protect against divorce
Breakdown of personal relationships can have an unexpected impact on a business - especially if your spouse is a co-owner or business partner. Disputes can arise over the value of the business, for instance, how much their share is worth or who should keep the business. Agreements such as can make a split easier for everyone, including your children if there are plans for them to inherit a family business.
9) Plan your exit
Business owners nearing retirement age or wishing to cash in should start planning well in advance, possibly years. This also applies to those thinking about passing on a business to family members. The structure of any sale needs to be carefully considered. Think about tax planning, shareholders’ agreements, whether to retain a financial interest, protecting client or supplier relationships, and who you wish to take your place as head of the business.
10) Where there’s a will
Heaven forbid…but it happens to us all eventually! The fallout that can result from the premature or unexpected death of a co-owner of a business is something that all business owners should carefully consider. Circumstances can quickly escalate into acrimony and potentially costly litigation if handled incorrectly. Legal agreements protect loved ones and also business partners with regard to shares or assets. Such plans are often drawn up alongside a personal will so that relief from Inheritance Tax, among many issues, can be considered.