Founder FAQ: Common Legal Questions for Business Owners

Introduction

Running a business means making decisions every day and many of these have legal implications.

Here are some of the common legal questions we hear from SME business owners and founders.

Do I really need a written contract?

Yes.

While not every agreement needs to be lengthy or complex, they generally should be documented in writing.

A written agreement provides clarity about what each party has agreed to, including payment terms, responsibilities, intellectual property, termination and what happens if something goes wrong.

While some verbal agreements may be legally binding, proving what was agreed can be difficult if a dispute arises.

Can I just use a contract template I found online?

Templates can be useful starting points, but they are not necessarily appropriate for your particular business or transaction.

A template may contain provisions that do not reflect your circumstances, omit important protections you require or create obligations you do not intend to accept.

The risk is not simply having a contract. It is having a contract that does not protect your business.

Our view is that you should use templates carefully and have important agreements reviewed to ensure that they reflect your business.

Recognising that cash flow can be a key consideration for small businesses, LawBase has created fixed fee legal packages for key legal documents including a shareholders agreement, employment contracts and website legal documents, including business terms and conditions, website terms of use and a privacy policy.

These fixed fee legal packages can be found here.

What happens if a customer doesn’t pay?

Your rights will depend on the terms of your contract and the circumstances surrounding the debt.

A well drafted contract should clearly establish when payment is due and what happens if payment isn’t made.

If a customer does not pay, the appropriate response may include issuing a formal demand, relying on contractual rights and potentially taking further recovery action.

However, you should not wait until a debt becomes significant before reviewing your payment terms and recovery processes.

Do I need a shareholders agreement if we all get along?

A shareholders agreement is not just for when shareholders disagree.

It is an important document that can establish how decisions are made, what happens when a shareholder wants to leave, how shares are transferred and what happens if there is a death, incapacity or a dispute.

Whether there is a good relationship or not, there is no guarantee that the circumstances will remain the same.

A shareholders agreement is about preparing for the future, not anticipating a deterioration in your relationship.

View our fixed-fee shareholders agreement package.

Can I hire someone as a contractor instead of an employee?

Not necessarily.

Whether someone is an employee or an independent contractor depends on the legal character of the relationship, rather than simply what the parties call it.

Misclassification can expose a business to claims relating to employment entitlements, superannuation and other obligations.

You should get the classification right before the person starts, rather than trying to fix it later.

When should I register my trade mark?

Ideally, before investing heavily in the business and brand.

Registering a business name or domain name does not necessarily give you exclusive rights to use the brand as a trade mark.

Before committing, consider whether someone else already has rights to it and whether trade mark registration is appropriate.

Do I really need legal advice before signing a contract?

You do not necessarily need a lawyer to review every document you sign.

However, legal advice can be particularly valuable where an agreement involves significant financial commitments, long-term obligations, personal guarantees, intellectual property, restraints, liability or termination rights.

The earlier an issue is identified, the more options you generally have to address it.

When should I speak to a lawyer?

You do not need to wait until there is a dispute to contact a lawyer.

Legal advice can be particularly valuable when you are:

• Starting or restructuring a business;
• Entering a significant commercial agreement;
• Taking on a business partner or shareholder;
• Hiring employees or contractors;
• Acquiring or selling a business;
• Protecting intellectual property;
• Expanding into a new market; or
• Preparing for a future sale or exit.

The role of a commercial lawyer is not simply to resolve problems. It is also to help identify and manage legal risks before they become problems.

Additional resources

Frequently asked questions