Avoiding the top 7 legal blunders that jeopardise your business

Setting up a new business is an exciting time. However, few business owners have legal training, and it is remarkably easy to walk straight into a legal pitfall in the early days of your business, completely unaware of the risk that you are creating. In this article, we consider how you can avoid the 7 worst legal missteps when setting up a business.

1. If you are starting a business together with anyone else, it is essential to have a clear and detailed agreement as to what this entails. Each party must have a clear understanding of what is required of them, what they do and do not have the power to do, and what is to happen if the relationship must end. Without these matters being considered and spelled out up-front, conflict is highly likely to ensue. No business will meet its potential unless the co-founders are on the same page.

2. In the absence of registering a company (or other legal entity), your business is YOU. That means that your business’s risks are your personal risks. Your assets – your home and savings or income – are directly available to your business’s creditors. If you are married in community of property, your spouse is just as much at risk. In some cases, it is appropriate to run your business as a sole proprietorship, where there is no division between you as a person and your business. However, where there are risks (as in most businesses), it is wiser to register a company and separate your business’s assets and risks from your own. Once you have concluded deals with suppliers and clients, those deals bind you personally even if you later create a company, unless the other parties agree to transfer the rights and duties to your company (which will seldom be in their best interests). Where it makes sense to register a company, do this right at the outset to avoid complications and protect yourself and your family from day one. 

3. In any business, there will be certain terms and conditions that you want to apply to your deals with clients. These need to be spelled out, in each and every transaction. It is worth drawing up a top-notch standard terms and conditions document, to use as the basis for every deal you conclude. You can vary your standard terms and conditions as needed from deal to deal, but will always have a proper basis for every deal which will avoid conflict and miscommunication, and protect you in the event of a dispute. Beware of borrowing documentation from other businesses or found online, as this may not be the best fit for your specific business. Do not copy and paste terms from various other sources as this tends to result in ambiguity and contradictions which might not be apparent until a dispute arises. 

4. A great deal of legal difficulties arise from poor communication. In employment relationships, as elsewhere in business, good clear communication of rights and responsibilities is essential. When hiring for your business, ensure that you have a good employment contract in place at the outset. Again, this will help avoid conflict and protect you should a dispute arise. When your business is just starting out, you may not be concerned with matters such as protecting confidential information (client lists and so on), but once your business is established and you experience staff turnover, you will regret omitting the necessary protections from your employees’ contracts.

5.  Good, clear agreements with your suppliers are also important. Often you will be on the receiving end of your suppliers’ standard terms and conditions. Ensure that you read and understand these. Before signing, make any amendments or additions that are needed, and have the supplier counter-sign these. There is no magic in a pre-printed form – do not blindly agree to terms that strike you as unreasonable or more risky than you can stomach. If there are issues that the pre-printed form fails to record and which matter to you, write them in.

6.  A clear, comprehensive document in black and white is generally preferable to relying upon a fallible human memory. This applies when contracting with clients, suppliers and staff, but it also applies to most transactions your business will engage in. Should disputes arise, a written record can serve as invaluable evidence. It is always a good practice to have a good filing system and to keep good written notes of important transactions with clients, suppliers and employees for later reference. Confirming important discussions and agreements in writing shortly after the event is an excellent practice. If you need to have a performance discussion with an under-performing employee, for example, take a good written minute of the discussion, provide the employee with a copy, and keep a copy on file.

7. Sometimes, a situation looks as if it is heading south long before it actually does. If legal advice is called for, seek it early. It is usually much simpler (and cheaper) to resolve a legal problem in the early days than to untangle the sort of mess that develops after a protracted period of denial and avoidance. Tackle problems early. Don’t wait until you are fairly certain that you have made a hash of things to seek advice. It is much better to follow good advice from the outset than to receive confirmation that you did exactly the wrong thing after the event (and that it is going to cost you dearly to rectify the situation).



Tips on avoiding a bad lawyer, from US attorney Tanya Starnes:

“1. Don’t go for a general practitioner when you need a specialist.Using the same business lawyer you’ve trusted from the beginning may lead to a bad experience if you really need a specialist. Should the case end up in court, you don’t want a lawyer who has never performed litigation cutting his teeth at your expense. The word “specialist” may cause you to cringe and think of high cost. However, Starnes argues that a specialist may turn out to be less expensive, depending on your needs. Where a general small-business attorney may take days to research and draw up the right documents, a real estate or tax specialist may solve your problem in a matter of hours.

2. Do some legwork to find a good attorney.Simply put, don’t let your fingers do the walking when it comes to tracking down competent legal advice. “Don’t be lazy,” Starnes says. “You can’t go to the mall and get a lawyer.” If you need a specialist, ask your current lawyer for a referral. Don’t stop there, though; ask people you know with some connection to your legal community. Get references and do background checks. The more time you put into your search, the better your chances of getting a competent lawyer who’s also suited to your business.

3. Do some due diligence on lawyers’ costs and fees, too.Before you contact a lawyer, consider how much time and money you are willing to spend on one. Make sure to account for time away from your business. Do some research on the Web and make some phone calls to get basic understanding of lawyers’ costs and whether your problem is worth what it might cost. If you decide that the issue is big enough, then it’s time to meet with a lawyer to discuss the problem and the fees required to solve it. But proceed cautiously: In the hands of the wrong lawyer, your $3,000 problem can quickly escalate into $30,000 and take months to resolve. If you lose, you now have to deal with both the original problem and a hefty legal fee.

4. Don’t sign up unless you’re completely comfortable with the fee arrangement and relationship.Make sure an attorney is worth what you’re spending—agree only to a fee structure that suits you. Small-business owners are often asked to sign blank checks or retainer fees. Avoid doing this if at all possible, Starnes says. It means that you are dependent on the honor system and likely will have no idea how much time your lawyer actually spends on your case. Instead, ask your lawyer for an estimate at the beginning. This will allow you to set up a budget and to avoid any unexpected surprises when the bills arrive. Take it as a serious red flag if the lawyer balks. As an attorney, “I can give you an estimate on just about anything that I know how to do,” Starnes says. “At the very least, I can give you a range and tell you the factors that will make it higher or lower. “Also, insist on a written fee agreement where all anticipated costs and fees are specified. In other words, get it in writing.

5. Understand what an attorney is doing for you.The last thing you want is for a legal problem to bite you later because your lawyer neglected to file the documents with the right government department-or, just as bad, did not let you know what the documents meant. That said, another warning sign is your lawyer failing to explain any sort of legal document he or she is drafting. To keep your relationship running smoothly, keep a written account of all interactions that you have with your attorney. As Starnes says in her book, “One of the most helpful things you can do, especially early in your relationship with your lawyer, is to provide a written summary and chronology of what happened. “This is particularly important in discussions concerning money. By documenting your understanding of fee changes or potential settlement discussions along the way, you will ensure a fair and quick resolution of any future disputes. As you move through each stage, question the things that you don’t understand. A good lawyer will take the time to explain and answer these questions.

6. Insist on a good system of communication.Insist in advance on how and how often you should communicate. If you have to wait days or weeks to hear back from your lawyer, either you didn’t relate your expectations well enough, or you have a lawyer too busy to take on your business. Give some thought to finding a new one as soon as you can. Starnes points out that you could have the best lawyer in the country, but if she is too wrapped up in a high-profile case, she isn’t devoting much time to you. That means your problem is unnecessarily going to take more time, and more money, to resolve.

7. Be wary of the “slam dunk” claim.”Any lawyer who tells you you’ve got a slam dunk case is probably not a very good lawyer,” Starnes says. “I have seen very few slam dunks in my time. The law is rarely black and white. Oftentimes, there is a disagreement, and who will win and lose is difficult to predict. “Depending on the case, an attorney likely will have to do some research and talk to several people before making any kind of assessment. While his confidence may be reassuring, his actions on your behalf are more important. Also, trust your gut. If you feel doubts about a lawyer’s comments or competence, you may be best to cut your losses, terminate the relationship, and move on.”

Source: Microsoft Business Centre resources – originally published at http://www.microsoft.com/business/en-us/resources/finance/legal-expenses/avoid-a-bad-lawyer-7-tips.aspx?fbid=BHP0CSGncpb 


Tusk, tusk… ivory seller walks free after blaming dead mother

Two related cases were decided at the Western Cape High Court shortly before Christmas last year. Both were brought by a Mr Goldberg.

In 2009, Mr Goldberg was taken by surprise by police officers at his family curio shop in Three Anchor Bay, and found in possession of 1,5 tons of ivory and ivory trinkets, for which he could not produce the proper documentation. He was charged with several counts of breaking the laws concerning possession of animal parts. Two weeks later, his bedridden mother (who had apparently started dealing in ivory in the 1950s) passed away.

In 2011, Mr Goldberg was convicted on several counts and sentenced to spend 7 years in prison (with 2 years being suspended).

In the first case, his legal team argued that the law under which he was charged was vague and over-broad, and thus unconstitutional. The Court did not agree, and refused his application to have the law declared unconstitutional.

In the second case, Mr Goldberg appealed against his conviction and sentence, arguing that he should not have been found guilty, but that even if he were guilty then the sentence to imprisonment was too harsh. The Court’s judgment focused on the conviction itself. Mr Goldberg produced documentation showing that his bedridden mother, then late, was the legal owner of the business which sold the ivory. While he was found in the shop, apparently in control of the business, the Court found that the evidence did not prove that he possessed the ivory for his own benefit.

As such, the Court took the view that Mr Goldberg had not committed any offence, and his deceased mother was the true culprit. At most, Mr Goldberg was an accessory to her crimes. However, an accessory had to be more than merely negligent – an accessory had to knowingly be an accessory to unlawful activity. The Court found that such knowledge on Mr Goldberg’s part had not been proved.

In the result, Mr Goldberg’s conviction and sentence were set aside.

Under his mother’s will, he was to inherit the curio shop. One wonders whether the shop still openly sells ivory, and whether with the necessary documentation in place.