Listed below are some common pitfalls facing small to medium business operators.
Once you’ve signed a lease you’re stuck with the payments and obligations for the duration. So you need to make sure that what’s in it is not going to cause you problems. Read it thoroughly and make sure you understand all of it. People get caught all the time with obligations they never knew were in it because they didn’t read all of it. We highly recommend people obtain legal advice before entering into leases and other
business contracts and agreements.
Gina signed a 5 year lease for a great shop at the main entrance to a large but old shopping centre that could have done with a lick of paint. She was so pleased with the prime position she signed. In the lease was a clause that said the landlord only had to give 3 months notice if he wanted to renovate. Gina was offered a shop at the rear of the centre for the duration of her lease with no reduction in the rent. She was furious. She was stuck.
A lawyer would have gone through the lease and made sure she understood all the possibilities that would be in the landlord’s favour and not hers. This was an expensive exercise for Gina who was now paying top rent for a shop with poor passing trade for another 4 years. For a relatively small payment of legal fees she could have saved a small fortune.
Joe & Dan signed a lease for their new business premises. Joe and Dan had a disagreement and Dan left…BUT after Dan left Joe caused some damages to the premises. The landlord sued Dan because his name was still on the lease. It costs Dan $20,000.00. He needed to get an indemnity from future liabilities from Joe to release him from his obligations on the lease when he left. It cost him thousands when a trip to see his lawyer at the time of leaving could have cost a lot less for a Deed of Indemnity.
When entering into a new business, or an existing business, with another party it is always prudent to obtain legal, accounting and financial planning advice.
A lawyer will be able to advise you in relation to what entity (such as a company, a family trust, a unit trust or a partnership) may be the most appropriate in your circumstances.
Your lawyer will also assist you with what documents you should consider to formalise the arrangements, as well as any licences or other agreements or contracts that may be required.
Scott and Paul both had experience in the hospitality industry and decided to start a catering business. They both got along well and decided that they did not need a written document to reflect the terms of their partnership. For the operation of their business they needed various licenses. Scott was more the hands on type and did most of the cooking while Paul was more the entrepreneur with business acumen. Paul obtained all of the licenses and entered into the contracts in his name.
Two years later Scott and Paul had a falling out and Paul walked out. As the licenses and contracts were not in Scott’s name he had a lot of difficulties in continuing to operate the business. If they had prepared a partnership agreement in writing before entering into the venture these issues would have been easier and cheaper to resolve.
Unfortunately we often see business proprietors when the problem is expensive to fix. Consequently some people think of lawyers as expensive. If everything is checked and adjusted before you start you can avoid the pitfalls, avoid the cost and avoid expensive bills from lawyers.
- Succession planning
- Employment contracts
- Licences & qualifications
- Protecting knowledge base
- Right business structure for your purpose
- Debtor control
- Confidentiality agreements
- Trade restrictions
- Shareholder agreements
- Leasing terms
When you enter into any of the following documents, you enter into a legal agreement to do something.
- Purchase of a business
- Finance agreement
- Terms of trade
- Supply agreement
Make sure you know what you are committed to do before you sign. If you are not happy you may be able to have extra clauses inserted or removed by mutual agreement.
For further information please don’t hesitate to contact us to make an appointment.