Small business laws: What you need to know

LEGAL know-how can prevent small business owners from making expensive mistakes.

LEGAL know-how can prevent small business owners from making costly mistakes.

While professional legal advice is recommended for major decisions, small business owners can arm themselves with simple principles to handle day-to-day affairs.

Sydney corporate lawyer Lachlan McKnight says understanding legal issues will help protect your firm from the unexpected.

McKnight is CEO of LegalVision, an online law firm that assists small and medium-sized businesses.

STARTING OUT

“Before buying a business, you should ask for copies of several legal documents,” McKnight says.

There needs to be evidence of ownership of assets, commercial leases, employment contracts, distributor agreements, insurance policies and contracts with customers, he says.

“Also, when looking at the financial statements, don’t just look at the balance sheet and profit and loss statement, as these can be misleading.
You should get copies of the business’s sales records as well.”

GET PAID ON TIME

McKnight says legal nous can help owners nip non-payment problems in the bud quickly.

“It amazes me how many business owners get in touch with us because they have done work for someone and the client will not pay up.

“Always get the customer to enter into a client agreement with you before you do work.

“This is a legally binding, enforceable contract between parties, setting out payment terms and work scope.”

PREVENT DISPUTES

The best way to avoid disputes with partners is to enter into a shareholders agreement. This binding arrangement regulates rights and responsibilities, including what will happen
in the event of a dispute, how profits will be distributed, and exit and sale procedures.

AVOID COURT

If things do turn pear shaped with a client or business partner, McKnight says think before you litigate.

“It can be tempting to go ‘all the way to court’,” he says. “But don’t let your emotions get in the way of a sensible dispute strategy. If you can settle quickly, you will almost certainly reduce your legal costs.”