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Law for Business

Knowhow - guidance - precedents

25 MAR 2014

Personal Protection

By Mark Gardner

Excello Law

Being in business can be a daunting prospect - so much to do and so little time to get it all done. The belief that the most important thing is to get the work done/product manufactured/out the door.

Clearly that is important as the business will not survive if it does not happen. However all of that effort can be a waste of time if due to pressure of time simple things are overlooked or not considered.

There are a number of fairly simple steps that can be put in place to protect business people from personal liability or at least minimise any claim. Not all will apply to all businesses and some may need amending to take account of particular circumstances.

The consequences of failing to consider matters can be serious. By way of example a recent client was venturing into business undertaking botox and similar treatments. He acquired premises, did the necessary work on the premises, acquired equipment, hired staff and undertook advertising etc. to promote the business. It was open for 3 months before he decided that it was not going to work. Leaving aside the continuing liability under the lease he now owes over £200,000.00 with limited prospects of paying it back and the possibility of losing the family home.

Some ideas to try and avoid such a scenario include:

  • Do some research - is there a market for your business idea? What is the acceptable level of charge, what does it cost to make/deliver including time and thus profit? How do the financial projections look? What happens if business is not as brisk as anticipated? What is the breakeven point and how long realistically will it take to get to that point? How are you going to survive until that point?
  • Is the business adequately insured? This could include employers and occupiers liability insurance, sickness cover for you/employees, key man insurance for the business. The list is endless - some are essential and others are voluntary but without knowing which is which you cannot make an informed decision about what is needed.
  • What business structure do you have/need? What are the risks to you or your family involved in running your business? It is a matter of assessing the likely risks and the consequences that flow from that risk. Limited companies or limited liability partnerships usually afford some protection but personal guarantees can often be required by lenders/landlords to go behind that protection. They can also offer some tax benefits in the right circumstances. Partnership or sole trader does not provide protection but can be beneficial and appropriate nevertheless.
  • If you are in business with someone else then have a partnership or shareholders and/or directors agreement - this should cover matters such as illness, authority to bind the business, amount of funds that each will take out of the business and what other benefits will be provided by the business and at what level, death, divorce, disagreements between the parties and how they will be resolved, valuing the interest in the business if the parties go their separate ways etc.
  • Always get proper legal advice before entering into any arrangements for property - there are often a number of hidden clauses in any property document and if you are entering into a lease then what are your repair responsibilities as the lease continues and at the end? What is the property's condition now? How much is the service charge and what can it increase by? What is the rent and how often does it increase and how is any increase to be calculated?
  • Have some terms of trading properly incorporated into your dealings with people including your dealings on the web. Seek to restrict your liability if your product is being incorporated into something else further down the manufacturing chain. Also cover more basic things like when you are to get paid!
  • Consider intellectual property matters - both as regards employees but also as regards your business colleagues and if you are providing designs etc. to others to manufacture for you.
  • Have some contracts of employment for employees dealing with what is expected of them, holidays, wages etc. but also dealing with restricting their activities whilst employed and when they leave. Are these sorts of things covered as between the business owners?
  • Do you have a disaster recovery plan in the event of a power cut/computer crash/virus/ fire of the premises (or the hotel next door which did happen in the last firm I worked at!)/illness of staff or you etc.?

This is by no means a full and detailed list of items to consider but I hope that it will at least start the thought process along not only the positive side of going into business but also some of the pitfalls.

Mark Gardner

Mark Gardner is a lawyer with Excello Law Limited. Mark is based in Darlington and regularly advises businesses in respect of contentious matters, debt recovery and insolvency. Mark can be contacted on mgardner@excellolaw.co.uk or 0785 261 6335 or 0845 257 9449.

Excello Law is the Corporate Intl Debt Recovery Law Firm England 2014.

- See more at: http://www.excellolaw.co.uk/blog/?p=633#more-633

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