6 legal mistakes to avoid in small business

Running a small business means you’ve got to wear many hats. Your primary goals are of course generating revenue and ensuring your business makes a profit, but every so often you’ll have to deal with areas a little out of your comfort zone. One of those areas involves legal issues. Every successful small business relies on a good lawyer for advice and legal support, but you don’t necessarily want to bear the expense of hiring a lawyer every time a legal related issue emerges. This quick checklist is designed to assist small business owners avoid some of the most common legal mistakes the LegalVision team regularly see made.

1. Don’t enter into Verbal Contracts

Many non-lawyers don’t realise that they can enter into a legally enforceable contract without actually agreeing to anything in writing. A verbal contract is binding, and the reality is that most small business owners enter into verbal contracts on a regular basis. This is generally a mistake. If a contract is worth entering into, it’s worth documenting correctly. In particular, if you’re entering into a contract with customers or suppliers, you should make sure the terms are clearly set out in a written contract. This greatly reduces the chance of a subsequent dispute, as both parties can refer back to the written agreement; there’s much less room for misinterpretation.

2. Make Sure a Lawyer Reviews your Written Contracts

Perhaps the only thing worse than a verbal contract is a written contract drafted by a non-lawyer. Drafting a good contract is a skill developed over many years, and if you try and draft your own business contracts you will invariably miss out important clauses, leave the document open to misinterpretation and/or fail to protect the interests of your business. Even if you want to save on some legal costs and create the first draft yourself, get your document signed off by a lawyer, preferably a contract specialist. You will save yourself a great deal of future pain and expense.

3. Always Read a Contract before Signing It

This one seems obvious, but you’d be surprised at the number of clients the LegalVision team assists who come to us having signed a contract they haven’t read! Put a bit of effort in and review any contract you’re entering into before signing it.  Make sure it says what you want it to say and make the effort to understand it.

4. Act in Accordance with your Governing Documents

Companies all have governing documents (a constitution, and sometimes a Shareholders Agreement). These documents set out rules that management and the board of directors must obey during the course of running the company. If, for instance, you’ve decided to borrow money, or offer a guarantee to another entity, you need to check the process you’re required to take to do this. Often you’ll need a board resolution to be executed, and in some cases you’ll need a special resolution of shareholders.

5. Employees – Act in Accordance with Fair Work Act

Small businesses often get into legal trouble for breaching their obligations under the Fair Work Act. If you want to terminate the employment of an employee, or make an employee redundant, make sure you’re acting in accordance with the law. You should work with an employment specialist to ensure you’re covering yourself and your business.

6. Taxes

Finally, perhaps the most common legal issue that small businesses make relates to the payment of taxes. Not paying your taxes is against the law! Make sure you understand your obligations, and make sure you’re working with an accountant who can give you solid, sound advice.

Conclusion

Running a small business is tough. It can be hard to stay on top of all the legal issues. The 6 mistakes we’ve described in this article are some of the most common issues we see on a day to day basis, but they’re only the tip of the iceberg! Make sure you work with a good lawyer to save yourself long term issues.