Top Legal Tips of 2010

The core of your business.

Properly drafted Terms & Conditions can affect the most important areas of your business, such as:

Your cash flow- Price & Payment

Your Ts & Cs must be clear as to what is included in the price (e.g. VAT, packaging, delivery, insurance, etc.). They must also give you the option to withdraw a quoted price after a certain deadline. The payment provisions must also be set out clearly. They should deal with issues such as time for payment, late payments, deductions, discounts, method of payments, etc.

Securitiy of your bookings / instructions

Your Ts & Cs should also deal with cancellation of orders or instructions. Often cancellations take place very near delivery time leaving you to pick up the cost of the unwanted products. If you are a service provider you do not get paid for the time you have already spent on preparing for the work and you may end up paying for other service providers you had lined up for the job.

Your Liability

A limitation of liability clause must be drafted widely enough to apply to the damage/breach in question, for example, to exclude "any loss" will not exclude liability for negligence. Also, your Ts & Cs must have an express reference to negligence where it is intended to be covered.

Delivery & Risk

Whether you deliver services or products, your Ts & Cs must include information about the time of delivery, place of delivery, failure to accept delivery and, for products, damage in transit or non delivery. Some Ts & Cs state that the risk (as to the responsibility for the goods) will pass on delivery so that if the goods are destroyed after delivery the customer will remain liable for the price. However, if the customer is unable to pay, perhaps because it is not insured and cannot bear such loss, the clause is valueless.

Protecting your brand.

Why work hard to build your business and your reputation to have someone come along and piggy back on all your efforts? There is a very simple and cost effective way to protect your business name and reputation. Registering a Trademark provides protection against someone using your business name as their own and is the only way to obtain legal exclusivity. Companies House registration alone is not protection! Importantly, if you don't register your name, someone else might!

A registered trademark is a valuable asset for your business. If you decide to sell your business it is important to a potential buyer that the company owns all the intellectual property in that business. A registered trademark is saleable asset and in some cases could be worth millions!

If you're setting up in business do you know if the name you have chosen is available? Before you invest money in designing your brand, logo, website, stationery etc, find out if your chosen name already belongs to someone else.
ACUMEN BUSINESS LAW have specialists in trademark registration to help you protect your businesses future.

New Disciplinary & Hearing Procedure.

The Key Changes are:

• There will no longer be a mandatory dispute resolution procedure which must be followed. This means that a dismissal will no longer be automatically unfair for failure to follow such a procedure.
• Minimum standards contained in the new ACAS Code should be followed.
• Unlike the statutory procedures, the Code and guidance are not legally binding, however, if an Employment Tribunal considers that an employer or an employee has unreasonably failed to follow the Code, it may adjust any compensation awarded by up to 25%.
• Employees will no longer have to bring a grievance before submitting an Employment Tribunal claim.
• The parties are urged to resolve disputes informally and to consider mediation.
• Conducting Disciplinary and Grievance Procedures under the New Regime
• The Code essentially retains the three step process found in the current statutory procedures.
• The Code will not apply to redundancies, the expiry of fixed-term contracts, or collective grievances.
• Disciplinary warnings are included in the three step procedure in the new ACAS Code, so employers should allow an appeal against such warnings.
• Both parties should deal with issues promptly.
• Employers should consider if it is appropriate for an employee to be provided with copies of written evidence, including witness statements, prior to a disciplinary meeting.
• Employers must advise employees of their right to be accompanied at disciplinary and grievance hearings. There is guidance as to what a companion can (and cannot) do at a hearing.
• Employees must be given a reasonable opportunity to call witnesses at a disciplinary hearing.
• Employers can proceed with a disciplinary hearing in an employee's absence where an employee has been persistently unable or unwilling to attend without good cause.
• Overlapping or grievance and disciplinary issues, which were difficult to deal with under the statutory procedures, will be replaced with a less complex system.
• In misconduct cases, different people should carry out the investigation and disciplinary hearing.
• Employees should be involved in the development of rules and procedures.
• What should Employers do to Prepare for the New Regime?
• Consider whether their disciplinary and grievance procedures comply with the ACAS Code;
• Where possible, consider the timing of disciplinary and grievance hearings, taking into account the changing regime;
• Ensure staff who are involved in conducting disciplinary and grievance procedures are fully aware of and trained to follow the new regime.

Pre-nuptial Agreement for Businesses

In most small and medium businesses, some or all of the directors are also the shareholders of the company. A point that is often missed is that shareholding and directorship are two distinct legal capacities with different rights and obligations attached to each in law.

Think of this scenario

Two of you set up a company together and you work around the clock. You both own 50% of company and you are both directors of the company receiving an equal salary. Your co-shareholder (Gerard) is married to an American who just had a fantastic offer to be a Hedge Fund advisor in LA. After much deliberation they decided to take the opportunity and make the move. Gerard has therefore resigned from his director's role in the company, informing you he will be leaving in 60 days.

Clearly Gerard will not be entitled to receive his salary after resignation. Five years later you successfully manage to sell the company for £3m, a great reward for all your hard work.

During these five years, unless stipulated otherwise in the Articles or in the Shareholders Agreement, Gerard remains a 50% shareholder in the company: he is entitled to vote, receive dividends and 50% of the £3m sale proceeds!

Directors/shareholders of most small and medium businesses would not be happy to have their business partner resign from their job in the company but still be entitled to be a company shareholder.

How to avoid such a scenario

It is quite astonishing how so many shareholders agreements I see totally ignore this crucial point!

To avoid such position, it is important that your Shareholders Agreement clearly stipulates that termination of directorship triggers provisions dealing with the termination/ sale of the resigning director's shareholding. The provisions need to stipulate that if the relevant shareholder no longer operates as a director for any reason whatsoever, then the termination of the Shareholders Agreement will apply.

Good / Bad Leavers Provisions

You can also include "Bad Leaver"/"Good Leaver" provisions. In a nutshell, these provisions stipulate that, on departure, the shares of the departing shareholder will be bought by you/the company/ an agreed 3rd party at market value, unless the relevant person is a bad leaver. An extreme example would be, say, your co-shareholder got caught with "her hand in the till". In such a case she would be a bad leaver only entitled to the nominal value of her shares (e.g. £1 each).

It is VERY difficult to get all these provisions in place once the relevant shareholder decides to resign. Like always, there is no time like the present!

Court should be the last resort!

1. Credit check potential and existing customers - There are a number of credit referencing agencies who will offer you this service. Companies House can offer information on incorporated businesses and private agencies can be used for unincorporated ones. It will require some effort, but it is essential that you check the ability of a new customer to pay you. Consider bi-annual checks on existing customers.
2. Agree payment terms and conditions - this may well be included in the terms and conditions governing the business relationship but make sure that from the outset that both parties are crystal clear as to their payment obligations. Confirm this in writing prior to your first supply of goods or services and make sure that they are clearly stated on all subsequent invoices. Up to date and relevant standard terms and conditions are essential to the proper function of most businesses.
3. Timely invoices - raise and issue invoices immediately upon completion of your supply. Ensure that all relevant address details are included, that they comply with all of your customer's requirements and that they restate when payment is expected by.
4. Keep clear and organised records - keep clear and accurate records of all communications with your customers, including emails. Make notes of telephone calls and keep clear records of payments so that you can monitor the status of the account easily.
5. Establish good lines of communication - identify who is who in your customers' accounts department and establish a good rapport with them. This will ease the way when trying to solve payment problems. Follow up invoices with phone calls to ensure receipt and call or visit your customer to remind them of any outstanding and late amounts.
6. Encourages fast payment - consider offering discounts to customers who pay promptly.
7. Understand your legal rights - for example, under The Late Payments of Commercial Debts (Interest) Act 1998, small businesses can charge interest to customers who have overdue accounts (Bank of England base rate plus 8%). Even if you don't state a payment period in the initial agreement with your customer, the Act deems a payment to be late after 30 days.
8. Be clear as to your own procedures - take time to set up or review your own credit control procedures. Have a clear and well documented set of rules for chasing late payments including standard letters to be sent out at set intervals. It may well be worth your while to have these drafted professionally to ensure that they have the right gravitas and that they invoke the relevant law whilst maintaining an appropriate tone. Train your staff in their use and centralise the authority to issue them. Once you have agreed your system, use it!
9. Situational awareness - keep an eye on your customers. This is not an invitation to spy on them, but do monitor their behaviour. Are they acting differently? Are they suddenly difficult to get hold of? Are they sending post-dated cheques? Remember, prevention is better than cure.
10. Talk softly, and carry a big stick! - No one wants to get to the point that the only option is formal legal action to recover a debt, but don't be afraid to go the whole nine yards if it comes to that. If all reasonable attempts to sort the problem out have failed, there are various options open to you if you have to go that far, all of which are 'user-friendly' and specifically intended for speed and ease of use.

No such thing as a standard lease!

Rent reviews are common in leases that run for more than 5 or so years. The reviews are usually on an 'upward only" basis. Upward only means that the rent go up in an upward market, but will not go down if market conditions are poor. If the bottom falls out of the market, the rent will not to go down accordingly. Therefore, when negotiating a lease, with an upward only review, it is important to ensure that there are break clauses to make sure that if your property is likely to become more than you can afford you are able to terminate the lease.

When negotiating a new lease there may be opportunity to request a rent free period. Factors that may influence the landlord's willingness to grant a rent free period could be market conditions as an incentive for the tenant to take on the property, to enable the tenant to refurbish, fit-out or improve the property, or sometimes for tax or other reasons.

Service charges are applied to leases if there are sums of money payable by a tenant to the landlord for the costs of services, repairs, maintenance, insurance and management under the terms of the lease. Before entering into a lease you should get as much information on what your likely exposure will be. Bear in mind that if your property is in a bad state, and needs significant works - you could end up paying much more than previous years' charges. Some landlords will agree to "cap" their service charges avoiding these sorts of problems. Also, it is important to check for any extra charges which may be incorporated into the lease.

You should also think about whether you will want to stay at your property after the end of the lease term. The default position at law is that a tenant can insist on staying in a property if the landlord doesn't have a genuine need to have it back (e.g. redeveloping or getting rid of a bad tenant). A landlord may exclude this right though. It is worth considering whether, as a tenant, you will want the option to renew the lease, especially taking into consideration any renovations you have made to the property, or any goodwill or other benefits you will be bringing to a particular site.

Legal MOT

We offer a free LEGAL MOT which covers all of the above as well as many other legal issues businesses face.  Why not start 2010 with a legal health check?

If you would like further information and guidance on the Regulations or any other matter we would be happy to meet with you.  Our free Legal MOT offers you the opportunity to meet with a Commercial Solicitor for no charge.