‘ An Ounce of Prevention is Worth More Than One Million Pounds of Cure’
At the start over 2016, SME’s accounted for 99.9% of the 5.5 million private sector businesses in the UK. Overall, it cost 18.2 billion in legal fees for all the private sector businesses to become legally compliant – that’s £14,800 each.
The Federation of Small Businesses recently surveyed 9,703 SMEs and found over 93,205 legal issues had been reported. Only 12% ever got the help of a solicitor. Hardly surprising considering 13% of those surveyed thought getting a solicitor would be cost-effective.
As a SME owner, it is your responsibility to be aware of the legal documents your small business needs before you experience a legal issue. Although getting legal advice was complicated and costly, Linkilaw provides free educational materials for SME owners and provides the legal documents laid out in this article at an 80% saving rate in comparison to other legal providers.
1. Terms And Conditions
Terms and Conditions (T&Cs) form the basis for a relationship between a business and its customers (B2C), or between your business and other businesses (B2B). As T&Cs constitute a legally binding contract outlining the rights and obligations of both parties, if you’re supplying goods and/or services this document should be considered a primary consideration. In practice you cannot start operating properly without having the right T&Cs to govern the business relationship between your business and the consumers. Having T&Cs in place will help boost legal certainty. Each party will be aware of its rights and duties and so confusions will be avoided for the most part.
What clauses will the terms and conditions for your small business need?
- Company Details
- Company House registration details, VAT number and an email address for customers to use for questions regarding the terms and conditions
- Clear definition of what products and/or services you will provide
- How is payment made and processed?
- When is payment due?
- Any guarantees or warranties offered?
- Intellectual property ownership
- Timelines for delivery
- Termination of the agreement
- What happens if either party doesn’t meet their respective obligations?
- Which jurisdiction will govern the contract
2. Shareholder Agreement
Any business that has more than one owner, or investor, is going to need this document to help regulate their relationship to one another and the business. Each owner will have responsibilities and powers given to them by a shareholders agreement they will have signed (hopefully) before they went into business together. You often hear that 68% of businesses fail because of internal conflicts. By getting the perfect shareholders agreement you could avoid all the trouble awaiting you on your SME journey.
The Perfect Shareholders Agreement for Small and Medium Size Businesses:
- Shareholder details
- Share assignment and future share issuance
- Voting rights
- Exit procedures
- Deadlock provisions
- Share Transfer restrictions and processes
- Drag Along Right
- Debt equity
- Restricted Activities
- Director appointment and details
3. Employment Contract
Imagine getting accepted into your dream business. When you get there with your morning coffee, ready to start the rest of your life, you walk to your desk. On it a computer…..no employment contract. No employment contract for two months……a year. You argue with your employer, you get fired, given a box with all your belongings and shown the door.
In this scenario both the employer and employee would get drawn into an employment tribunal and years of lawsuits.
It would have been easier to just get an agreement which laid out everything to make the employer and employee feel confident in their legally based relationship.
The basics of an employment contract:
- The details of the employee and employer
- The job description of the employer
- Grievance procedure
- Probationary period
- Salary review procedure
- Will the employee have to work in another country?
- Remuneration details
- When will the employee be paid?
- Restrictions on working for other businesses or in fields similar to the business
4. Director’s Service Agreement
This documents lays out the rights and obligations of a Director. Not required by law, but essential. Thinks of it as an employment contract, but just for the individual in charge of the day-to-day running of the business. If any disagreements arise this document will help lay out the path to resolution.
A Director’s Service Agreement Includes;
- The notice period to terminate the agreement
- Duties description, including reference to Companies Act 2006
- Restrictions on the activities of the duties of the director if related to the business in anyway.
- Remuneration details
- The liability of the director
- Ownership of intellectual property
- Performance evaluation criteria
5. Consultancy Contract
We have all been in a work situation where you have debated bringing in a consultant to liaise with you on a project or for a specific amount of time. Like many you would have moved ahead with it. Think of a consultancy contract as being similar to an employment agreement but detailing fewer rights.
What to include:
- Governing jurisdiction
- The details of the consultant and employer
- Proposed duration of the agreement
- Payment details
- Job Description
- Location of work
- Dispute or mediation provisions
6. The Essential Legal Documents For Websites
If you’re getting ready to walk through that dot com doorway, better not take another step until you get all your legal documents in order. You don’t want to ruin your businesses reputation between your customers didn’t know what your obligations were to them and theirs to you. Although website terms and conditions will be similar to standard terms and conditions, they will have privacy provisions and will reference your cookie and privacy policies.
All will lay out what data is collected, how it is collected, how it is stored, who it may be shared with and how long it will be kept the business for, the list goes on and on.
If need more guidance on what legal documents your small or medium sized business may need. Book a Startup Legal Session or start a chat with one of our team.