At Marrawah Law, we do a lot of work with small and medium sized businesses. If you are thinking about starting your own business, restructuring, partnering with others or want to check everything is in order, take a look at these helpful tips.
Make sure you do your homework before you enter into business with someone
People may reach out to you wanting to start a joint venture or a new business, offering funding or other attractive options in exchange for your expertise (or offering their expertise in exchange for your funding). This can be attractive, but we have seen many unsuccessful examples with some even leading to costly disputes have arisen because the people involved could not work together, or because they were seeking each other out for the wrong reasons. This can happen even when you think you know someone well (eg a longtime friend, a partner).
Our tip: do your due diligence. If the person runs another business, ask to see the books. You could also engage a lawyer to prepare a due diligence report. Also, if you don’t already know the person well, spend some time getting to know them on a personal basis to make sure your characters work well together – even if you are set up perfectly from a legal standpoint, personality clashes can make everything come crumbling down.
Be certain each person involved, as well as the company, has initial legal advice
Even if you know the person well, it is still important that any agreements you enter are reviewed by a lawyer engaged to act for YOU as an individual, as well as for your company if the company is entering an agreement.
Unfortunately, one-sided deals sometimes arise, for example the shareholder agreements that subject one party to more onerous obligations than the other. This can be important if the working relationship deteriorates and an exit strategy is needed. For example, at Marrawah Law we have seen shareholder’s agreements in which one shareholder may have to pay market value for the other shareholder’s shares to buy that shareholder out of the business, while the second shareholder has to pay market value minus the value of goodwill (which can be significant). This type of deal can be avoided with the right advice.
Get help to negotiate your agreements.
Some small business owners who work for, or sell to, larger businesses or government fall into the trap of simply agreeing to what is put in front of them by the larger business. The larger (and often more legally experienced) businesses and departments usually have boilerplate agreements they use for all procurement or partnership purposes.
As a business you are almost always able to negotiate the terms of your contracts as a supplier. If something stands out to you as unfair or inappropriate for your transaction, you should feel confident to raise this with the representatives on the other side of the transaction. Of course, a lawyer can help you by conducting a review of the contract to make sure your interests are protected.
Have you thought about commercial leases?
Where you do business is very important. This might be your head office, your shopfront, your workshop or the warehouse where you keep your inventory. It will often be desirable to enter a commercial lease, but a lease drafted by a landlord’s lawyers alone will usually be heavily in their favour.
By taking a commercial lease, you are acquiring a right to the land, but you are also taking on liabilities that can be significant. You may be required to conduct your work on the property in compliance with planning legislation and overlays, and environmental frameworks. The lease itself might also require you to conduct certain types of maintenance and repairs.
It’s important to make sure that:
- you understand the full scope of what you need to do under the lease; and
- factor the costs of fulfilling your obligations (both in time and financial) into your business expenses.
- Make sure you protect your intellectual property.
While most people know to lock up their shops, workshops or offices at night to protect the valuable assets inside, many small business owners forget to take steps to protect their intellectual property.
Intellectual property includes rights that sound familiar (such as patents and copyright), but it can be complex to protect these rights in commercial arrangements. For example, while you will generally have automatic copyright in your own work, that is not always the case. Copyright and other intellectual property rights such as designs, patents and trademarks may be assigned or licensed in commercial agreements. This can become quite difficult where rights are co-owned.
Also, Australian law does not protect communal intellectual property rights, so it may also be necessary to create a bespoke agreement to protect collective intellectual property such as traditional Aboriginal or Torres Strait Islander cultural knowledge if you are a First Nations business.
If this has caused you to re-think or review your current arrangements or longer-term plans, please don’t hesitate to call Kylie on 07 4041 3088 to discuss further.
