Common legal issues in businesses and how to avoid them

Despite the economy having taken a hit during the course of the Covid pandemic, things are looking much more optimistic for businesses as we head out of lockdown.

Furthermore, the statistics around business start-ups during the last 12 months actually paint a positive picture.

Statistics from Companies House show that the number of small businesses launched in 2020 increased by more than 40 per cent to 830,000.

With so many new businesses around, we thought we’d describe some of the main legal issues we come across in relation to small and medium sized businesses and how these can be avoided.

Employee issues

Taking on and managing staff is often cited as one of the most stressful and difficult areas of running a business. Taking on staff is a serious commitment and getting rid of employees that do not work out isn’t easy to do. As such, the starting point for advice is to be careful who you employ and on what basis.

The express terms of an employment contract, which typically include things like pay, hours and holiday entitlement sick pay and holiday pay, should ideally be laid out in writing and issued within two months of the employee’s start date.

You should also consider putting together a more substantial list of working practices and company policies in an ‘employee handbook’. This document, which should be accessible to all employees at all times, should contain information on all employment procedures such as sick/parental/annual/compassionate leave, conduct and discipline policies, health and safety policies, performance management policies, IT policies and information on company confidentiality, amongst others. Having an employee handbook in place can go some way to protecting the business in the event of an employment claim as you will be able to evidence that you laid out all employment procedures from the start.

Both during the recruitment process and after employment has commenced, employers should be aware that there are a number of key compliance issues around holding employee information.

Disagreements between shareholders

Setting up a business with another party or parties can carry many benefits such as sharing responsibility and the initial costs, as well as pooling expertise. However, if the business relationship between shareholders isn’t formally documented in a Shareholders’ Agreement, there can be a significant risk of losing all that you have worked to build as well as any financial commitments you may have made if there is a fall out.

Notwithstanding the potential for business partners to disagree, as a business grows, there will be many decisions to take which can be tackled much more easily if there is an agreement in place as to shareholders’ responsibilities and their decision-making power.

A Shareholders’ Agreement is a relatively straightforward legal document to put in place and regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protection of the shareholders.

Failure to obtain agreement

Signing up new customers is an exciting process and getting bogged down with the paperwork can take the shine off. It could therefore be tempting to sideline sending getting terms and conditions or service level agreements in place until a later date. The problem is, this later date may never come and the longer it left to obtain signatures on paperwork, the less likely it is to happen.

The good news from a practical perspective of getting paperwork returned is that emails will most often count as an agreement. Scanned and returned signatory pages or electronic signatures contained within documents are also fully acceptable.

Ensuring that the documents themselves are suitable for your purposes and will protect you adequately should you need to call upon them is a different matter. Many businesses may feel that a standard set of terms ‘will do’, or may put something in place in haste with a view to reviewing this at a later date.

Having to enforce terms and conditions or another commercial agreement relies upon having robust contracts that reflect your business practices in the first place. If your documents are not suitable for your business or its purpose, you are only putting yourself at risk and for the relatively small fee of having something suitable drafted or reviewed, it is usually well worth it.

These are just some of the many obstacles and challenges that businesses may face. To find out more about how to protect yourself and the business with legal advice on these key areas and others, please get in touch.

To access our Commercial/Corporate Law services please contact James O’Donnell at our head office at Appleby’s Business Centre, 1-3 Mossley Road, Saddleworth, Grasscroft on 01457 761 320 or email James O’Donnell at Web: