The Foundation Stones of A New Business (Part 6) Legal Issues and Contracts
It’s exciting when you have that light bulb moment, that flash of brilliance and idea for your new business. It’s hard not to get carried away with the excitement but turning your idea into a business necessitates research, risk, passion and planning. There are very few shortcuts and no amount of enthusiasm, hard work or talent can guarantee your business success.
There are numerous issues you need to address before you can open your doors and having mentored hundreds of business owners through the start-up phase we often say starting a business is like building a house. You need to have a plan and build on solid foundations. In a business sense this means having things like the right business structure, branding, accounting software and insurances. You also need a financial budget and a marketing plan.
In this series of articles, we are examining the 8 foundation stones for a new business and the focus of this post is the importance of a solicitor and the need for legal advice.
As a business start-up there are a number of key areas where a solicitor can assist you. These might include drafting or reviewing contracts and agreements, negotiating your commercial or retail lease, advice on insurance claims or representing your interests in disputes with authorities or other businesses.
A contract is a binding legal agreement, which is created when there has been an offer, an acceptance of the offer, consideration (usually the price of goods or services supplied) and an intention by the parties to enter into a legal relationship. There are many types of contracts that will affect your business including your contract with your customers. You might potentially enter into agreements or contracts for:
- the purchase of a business
- the lease of your business premises
- the supply of financial services (such as an overdraft facility)
- with suppliers and customers including the terms of trade
- employment agreements with staff
- the supply of telephone, internet and utility services
With customers, it is important to establish your terms of trade so that you avoid disputes down the track. It can help with the collection of bad debts and the system could be as simple as providing a quote that the customer accepts by signing. Commonly the terms of agreement are often specified on the back of quotations. Remember, if a contract has not been signed it does not necessarily mean that there is not a legal contract. A binding legal agreement may have been established by other means, such as the conduct of the parties and what was said between them.
A lease is a special type of contract between the lessor (the owner) and the lessee to use the property. A lease can relate to land and buildings or to personal property such as motor vehicles, photocopiers and telephone systems. Where the lease relates to land and buildings the owner is called the ‘landlord’ and the lessee is called the ‘tenant’.
The terms of the lease are generally negotiated between the landlord and the lessee and the main issues that need to be addressed in the lease include the term of the lease, the amount and frequency of the rent, details of the tenant's responsibility for the property outgoings, permitted uses of the property, the option (if applicable) and the bond or bank guarantee (if applicable). It is advisable to consult with a solicitor to assist you in negotiating the terms of your lease.
Most commercial leases hold the lessee responsible for keeping the premises plus the fixtures and fittings in good condition. Many leases provide for payment of all or a portion of the rates, insurance, maintenance and so on. Make sure these are clearly stated as they are additional to your base rent. If you vacate the premises before the lease expires you may still be liable for payment of rent and ongoing costs if a new tenant cannot be found. Before signing the lease, the lessor must provide the lessee with a signed copy of the lease. If the lease is for a retail shop, the lessor is also required to provide a Disclosure Statement to the lessee at least seven days before the lease is entered into. Both parties should make sure that they speak to their solicitor, accountant, the local council (to be sure there is approval for the use) before they sign the lease.
Do You Need A Will?
Making a Will is something we all know we should do, but like exercising daily and eating a balanced diet, it’s something many of us never get around to until it’s too late. It is one of the most important documents you will ever sign because you are ‘giving away’ almost everything you own. It is therefore important to ensure that it reflects your current wishes and distributes your estate in the most beneficial and tax effective way. You must be 18 years of age and be of sound mind, memory and understanding to make a Will.
A Will is the cornerstone of good estate planning. It’s critical to obtain competent legal help in drafting your Will because a poorly drafted Will can be the cause of endless trouble for your surviving family and beneficiaries. Dying without a Will can be costly and creates added stress for your family at a time that is already difficult. In addition, you risk your estate being distributed according to strict Government requirements rather than your wishes. This makes your estate difficult to administer and it will take longer to be finalised, resulting in increased costs. You may also lose the choice of who benefits from your estate.
What do you need to consider?
- Do you have an effective, current Will?
- Do you believe you may require the creation of more complex trusts within this Will?
- Do you have beneficiaries with special needs?
- Are you concerned there won’t be enough money to satisfy your family’s future needs?
- Do you need to consider any tax or other implications of your estate planning arrangements?
- Who is to benefit from your Life Insurance and Superannuation policies?
- Do you have property held as tenants in common?
- Does anyone else know where your tax records and supporting tax documents are located?
- Does anyone know who your Accountant is? Your Lawyer? Your Broker?
We recommend you review your Will every couple of years, or whenever your circumstances change such as starting a business.
We understand the business evaluation and establishment phases can be periods of great anxiety due to a combination of excitement, uncertainty and financial risk. Over the years we have built a reputation as business start-up specialists and have put together a range of tools, templates and checklists to help you get your business off to a flying start. If you're contemplating starting a business talk to us today about our New Business Starter Kit that contains templates for a business plan, cash flow budget, profit and loss forecast together with our unique 82 step start-up checklist.
Stay tuned for the next instalment in this series that examines the importance of marketing your business.
This is general information only. It simply provides an overview of alternative business structures available at the date of publication. It does not serve as advice and no action should be taken on the information provided herein without consulting the relevant legislation or seeking professional advice from your accountant, solicitor or professional advisor. No responsibility for loss occasioned by any person acting on the material contained in this document can be accepted by the accounting firm.