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How to avoid legal pitfalls when running a business

From negotiating favourable lease terms to protecting sensitive data – here’s how to stay out of the courtroom.

It’s no exaggeration to say that most small businesses will need legal advice at some point in their entrepreneurial journey. As a business owner you call the shots – but you also bear ultimate responsibility when things go wrong.

Follow these top tips to keep you in the boardroom and out of the courtroom.

Always read the small print

Businesses often don’t realise how unfavourable their contracts are until a dispute arises.

For example, your relationship with customers may seem amiable – until they default on payments.

Contracts are legally binding documents – so if you sign quickly without reading everything (including the small print) you could end up kicking yourself further down the line.

A lawyer can draw up a contract to protect your business from issues such as non-payment of business debts, late payment and being forced to accept faulty goods.

Negotiate favourable lease terms

Some of today’s most renowned businesses started out life in a bedroom, dorm room or a garage (Apple, to name just one). If you progress beyond this point, then – unless you have the means to buy premises outright – you will have to sign a lease.

Again, read the small print. Look out for extortionate service charges and substantial redecorating clauses buried in the contract.

Revise your employment contracts

The ebb and flow of revenues and costs sometimes necessitates retrenchment as well as expansion – and this means letting employees go, cutting their hours, relocating them or giving them a new role.

But if any of these actions contravene their employment contract you are exposing your business to the risk of litigation.

Be mindful, therefore, of your business needs when drawing up employment contracts. Some businesses stipulate two- or three-month notice periods for the termination of contracts, rather than one, for example. And it goes without saying – but let’s say it anyway: you should appoint a lawyer to draw up employment contracts.

Set some HR guidelines

Small businesses often lack employee manuals with guidance on how the employer and their employees should conduct themselves in the course of their work or business. Failing to establish a framework for the employer-employee relationship is, once again, a recipe for legal wrangles.

All too often we hear of successful small businesses filing for bankruptcy over lawsuits from ex-employees.

Seek the advice of a human resource professional to formulate policies that fit your company.

Consider becoming a limited company

Some entrepreneurs think they’re too small to become a limited company or that tiresome rules, regulations and restrictions will be attached.

But becoming a limited company could save you thousands of pounds further down the line and is a lot easier than it sounds. It can bring prestige, tax benefits, new fundraising avenues and many more benefits.

Don’t forget patents, copyrights and trademarks

Protecting your intellectual property gives you legal recourse if people steal your ideas, copy your product designs or imitate your brand signifiers.

And yet, many small businesses think about doing so only when it’s too late.

With the help of a solicitor, create an inventory of your company’s intellectual property and apply for patents, a copyright or trademarks where it is judicious to do so.

Resist badmouthing your competitors online

Tempting as it may be, criticising your competition in a public forum – especially online – can also leave you open to court action.

The internet has given disgruntled customers unprecedented power to punish poor service – and rightly so. But if a competitor posts negative reviews or comments on a company’s products or services then it’s reasonable to discern an ulterior motive.

Expressing yourself online leaves a permanent record and we’re seeing an increasing number of companies being subject to lawsuits alleging slander and libel against their rivals – especially, but not only, if the allegations are shown to be without merit.

Protect your customer data

Small businesses are often poorly protected against cybercrime. A report from McAfee found that almost 90% of US small- and medium-sized businesses do not use data protection for sensitive information and less than half secure company email against phishing scams.

Failing to protect your digital assets can result in huge financial losses – $100m in the case of Sony – and a damaged reputation. According to PwC, breaches have cost businesses as much as £115,000 in the worst cases.

With major hacking scandals erupting weekly, more businesses are belatedly waking up to the importance of data protection.

As a starting point, all devices in your network should be up to date with the latest anti-virus and anti-spyware software.

It is also wise to have a clearly written security policy, available to all employees, and to host training sessions on creating strong passwords, storing and destroying data and protecting data on mobile devices, especially outside the office.

Melanie Luff

About the author

Mel wrote for all titles in the Dynamis stable including, and as well as other global industry publications.


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