Business owners often overlook certain financial and legal issues

Business owners often overlook certain financial and legal issues

Many people begin the new year by taking a fresh look at their business goals and updating their business plan. However, there are some common legal and financial issues which are frequently overlooked and are even more worthy of review. Addressing them will only take an hour or two, but the consequences of not doing so could be serious. We find that these seven issues are often put on the back burner with the excuse that ‘I’m too busy!’ and so raise them with our clients on a regular basis.

Review use of self-employed contractors and NEDs

Many organisations use self-employed contractors to avoid the legal burden of taking on employees. Non-executive directors may also fall into this category. However, this can leave your business open to theft of your intellectual property, data and customers if the correct contractual terms are not in place.

There can also be tax implications. If the contractor is not operating through their own personal service company, HMRC could charge you PAYE and employer’s National Insurance contributions, while incorrect classification of an employee can result in their employer being held accountable for tax not accounted for through the PAYE system. This could include interest and penalties of up to 100 per cent of the outstanding liabilities. One of our clients was recently the subject of a HMRC employment status enquiry, and whilst the resulting tax liability was small, handling the enquiry took significant time and effort.

In April 2017 new regulations on the use of contract workers were introduced in the public sector to prevent what is referred to as disguised employment. These apply whether the contractor is working as self-employed or via their own personal service company. In the November Budget a consultation was announced to review introducing the public sector measures to the private sector in due course, therefore it is important to understand if your contractor, however they trade, is not or should not be defined as self-employed.

Comply with the business names act

Many businesses, including my own, conduct most of their correspondence by email. We find that the email signature of many organisations does not display the legal requirements shown on their business letterhead ie company name, number and registered office address. Some of their customers and suppliers may never have seen a letterhead and hence may be unaware that they are dealing with a limited company.

If contractual problems arise at a later stage, they may successfully argue that they believed they were contracting with a sole trader, and the director agreeing the contract may find themselves personally liable, despite being a shareholder and director with limited liability. It is also an offence to fail to comply with the requirements, which can result in penalties.

It only takes a few moments to amend your email signature and website to include the legally required information.

Examine your shareholder/partnership agreement

Many people form a limited company with other shareholders without creating a shareholder agreement, mainly to save costs or not being aware of its importance. However, what happens if there is a dispute or a shareholder walks out? Without a properly constructed shareholders’ agreement, you could be in the position of being unable to resolve the situation and in the worst case scenario the company could fail. The problem becomes worse if there are bank or other borrowings backed by personal guarantees. The same applies to partnerships without a partnership agreement.

We recently helped a client to address this issue. A shareholder had left the business and there was no agreement in place to enable their shares to be bought either by existing shareholders or the company. Without this they could not move the business forward.

You should regularly review your shareholder or partnership agreement, or if you do not have one start planning and book a meeting with a solicitor.

Update your terms and conditions

Many businesses begin with terms and conditions (T&Cs) derived from another business, and these quickly become out of date. In 2018, for example, most will need to be amended to take account of the General Data Protection Regulations (GDPR). If you have a customer dispute or a problem receiving payment, badly drafted terms and conditions will seriously undermine your legal position and lead to expensive litigation or an equally costly ‘walking away’. To ensure your T&Cs remain fit for purpose, ask a solicitor to review them.

Check your business insurances and will

As your business grows you should ensure you have appropriate business insurance, including both shareholder and ‘key man’ protection. You may have viewed it an unnecessary expense, but consider what would happen to the business and your family if you were taken ill or otherwise unable to work.

Key man insurance protects the business, while shareholder protection provides the business with funds to buy your shares from your estate if you die so that your family receives some funds relatively quickly. Organisations such as the Federation of Small Businesses may provide relevant policies. You should also ensure you have a will appropriate to your current circumstances in place, and review it regularly.

Audit your intellectual property

Brands and trademarks are among a company’s most valuable assets. The ramifications of not protecting them can be serious, including theft, loss of reputation, loss of income and reduction in company value. Now is a good time to review your intellectual property (IP) to see what can readily be protected, remembering that IP includes design rights and software as well as registered patents and trademarks. A trademark can be registered online for a fee of £175.

Review your banking support

With the credit crunch over, banks are competing for customers with the new challenger banks, making it a good time to review your banking provision. Some internet research will quickly reveal the best business banking and lending deals. If you need finance, you could also consider helping your retirement fund with a loan from your pension fund to your company, but obtain specialist advice first.

Phil Mitchell is director of Harbour Key.

Further reading on financial sins

Source link