For many business owners the day-to-day running of the business can be all-consuming, meaning that contemplating the risks to the business that would arise in the event they should lose mental capacity, or die, naturally tend to fall down the priority list.
None of us enjoys confronting our own demise, but most of us recognise the need to have a will and Lasting Powers of Attorney (LPAs) in place to deal with our personal affairs. What tends to be considered less is putting in place similar legal instruments what would help protect your business.
There are three key documents to consider:
If a business owner loses capacity and there is no Lasting Power of Attorney, it may be impossible for anyone else to deal with the management of key aspects of the business such as property and finances. The worst case scenario is that this could result in employees not receiving their wages and creditors not being paid, leading to potential debt recovery actions and even proceedings to wind up the business.
Even if you already have a Property and Financial Affairs Lasting Power of Attorney in place, the person you appoint to deal with your personal finances (usually the spouse, a friend or a family member) may not be equipped with the specialist knowledge required to deal with your business interests.
In having two separate LPAs, one to deal with your personal financial affairs and another for your business affairs, you can appoint different people with the right expertise to act in your best interests and ensure the continuity of the business in the event of incapacity or death.
In the absence of a shareholder agreement, when a business owner dies their share of the business will be passed by way of their will or intestacy (in the absence of a will). The result for the business could be that the business interest passes to a spouse or family member who may not be involved (or interested) in the business and this person would now be integral to the running of the business.
A shareholder agreement can be invaluable in ensuring that the control of the business is retained by those involved with the business. It can also provide that, upon the death of a shareholder, the estate will receive the equivalent value of the shares and that the business has an option to purchase the shares – usually funded by an insurance policy.
A shareholder agreement is not confined to dealing with the death of a shareholder but can also include provisions should any of the owners wish to sell their interest, recording agreement between those involved in the business and mitigating any possible conflict between owners and prospective owners in the future.
In current legislation there are valuable inheritance tax reliefs – Business Property Relief and/or Agricultural Property Reliefs – which can be applicable to business interests. A well drafted Will can result in the mitigation of tax taking advantage of available reliefs. A Will, together with a shareholders agreement, can help avoid the scenario whereby the beneficiaries of the shareholder’s estate wish to sell the shares and the remaining shareholders may have to find the funds to purchase the shares in order to retain control of the business in order to prevent them being sold to a third party.
Social media sites like Twitter, Facebook, and LinkedIn have become essential to how we communicate in the modern world, both from a personal and a commercial perspective. For business owners, however, social media use can pose significant risks that may not be readily apparent.
Here are three key types of risk that we think business owners should bear in mind:
What you post online from your own personal social media accounts can of course expose you to personal liability – for example, for libel or harassment.
But it could also potentially expose your business if your post contains any confidential information, or for the infringement of an employees’ rights if you post about a specific individual.
Make sure that what you post is factual and does not breach any business confidences or infringes an employee’s rights to privacy and protection . And if what you are posting is your personal opinion, then make that really clear– otherwise you risk creating a liability for your business. If in doubt, take advice from experienced professionals – or simply don’t post it!
If a third party posts something untrue about you or your business, and this negatively impacts how you are viewed by your clients, this could lead to lost revenue and/or long-term damage to your brand. If the post is untrue you could bring a legal claim against the third party, but you must take swift action to limit the damage.
Consider putting in place a reputation management plan, based on expert PR and legal advice, so that you know what you’re going to do to protect your business from online reputational damage should the need arise.
Not many business owners are aware that they can be held liable for something posted by one of their employees.
There are legal precedents which a third party can use to argue that an employee was speaking on behalf of a business, even in a personal social media post. And usually a business is a more attractive financial target than an individual when it comes to legal claims. This is why most employers have social media policies in their employment contracts and handbooks, and provide appropriate staff training to protect their businesses from this potential harm.
Check that your business has this properly covered.
How to give your franchise a better chance of success by bearing these four key points in mind when reviewing your Franchise Agreement.
In the excitement of embarking on a new franchise business, it’s easy to overlook the importance of the terms you’re being offered.
Yet the franchise agreement lays out all your obligations and rights, which if properly considered could make it easier for your business to succeed.
Conversely, signing up without advice is a big risk for any business to take. There are often clauses in the agreement which don’t hang together properly, are not standard, or that place you at a disadvantage.
Get these right and your business is ahead from the start
When you’re weighing up the opportunity, the extent of exclusivity you’re being offered can have a big impact on the business from access to customers and how close your competition could be.
These clauses are not identical from one agreement to the next. It’s important to know what exactly the terms grant you, and what the franchisor carves out from the exclusivity. We’ve seen a lot of these before and they can make or break a business.
If it’s not in the contract it doesn’t exist. That’s worth remembering. You shouldn’t make a commitment based on a conversation or a presentation backed up by verbal assurances from the franchisor.
An experienced eye can spot what’s missing and ensure that anything you have been told by the franchisor, which is important to your decision to go ahead, is reflected in the legal terms. More protection for you.
It’s not always obvious, but you’ll be more successful if you’re thinking right from the start about how you plan to exit the business.
The contract’s terms here are key particularly over who owns the clients, what renewal rights exist, the consequences and process for sale or termination.
Knowing what’s on offer could influence your decision to go ahead, or might give you scope to have the terms changed to suit your needs better.
Although your franchise agreement might be through a company, there is usually a personal guarantee that will need to be made on your part.
You need to be clear on your individual liability if things don’t go to plan.
Seeking advice at this stage to clarify, and potentially mitigate, your personal exposure could save heartache and money in the future.
Any franchise contract is an opportunity to do a deal. For a fraction of the franchise fee ask our Franchise specialist, Amy Leite, to perform a review – she’ll make sure you fully understand the contract, the opportunities you have within it and any risks it hides.
A commercial lease should offer balanced protection for landlord and tenant, but many properties and leases contain potentially painful features.
You’d be surprised how many businesses sign off on a lease – even for six figure rents – without ever reading through the terms.
People have come to think of them as standard documents, but they are not. Properties are as different as businesses, and who’d buy a business without reading its accounts?
The main issues appear quite simple, and perhaps that’s why they’re often overlooked, but when you consider the implications it quickly becomes apparent that the details need careful checking.
It’s important to make sure you understand all the terms of the lease and know the right questions to ask about the property and its condition before you move in. After that, you can do a better job of amending the lease to better represent your needs.
Here are our top three tips for getting it right from the outset:
1. You do have a contract, don’t you?
Firstly, make sure you’ve got a detailed written lease on the property. A word of mouth assurance and a handshake are not enough.
In a perfect world you might be fine – but if ever any disputes arise over rent, repairs, damage, or contamination – you’ll have lawyers for each side slugging it out over who is responsible for what. Inevitably it will be disruptive, distracting and expensive – so make sure you get it all tied up at the outset.
2. Do you know what you’re getting into?
You’ve been to view the property, but have you uncovered all its dirty secrets?
Condition and compliance are two of the most problematic aspects of a commercial property transaction as they conceal so much potential for disruption and expense.
You need to know about all the issues concerning the building and the site. You can get some of the answers by simply asking the landlord’s solicitors about condition and compliance including any prior contamination of the site and compliance with regulations.
But you should also consider having detailed searches done on the property which will highlight other environmental issues and responsibilities as well as any planning history that might restrict your expansion or enforcement notices that would prevent your proposed use.
If the property is already in disrepair, a tenant should also take advice with a view to limiting their obligations to repair.
3. Does your lease provide adequate protection for your business?
A lease commits landlord and tenant and sets out the terms of that commitment. Looked at from another angle, it’s a kind of insurance policy making clear what happens in a range of possible events.
Your lease should enable you to suspend the rent and any service charge if the property cannot be occupied, but they don’t always include that provision. Equally, if the property is damaged by an uninsured risk as to prevent occupation then, unless the landlord agrees to rebuild at their own cost, you should have the ability as tenant to terminate the lease and seek a new permanent home for your firm.
If you don’t have such clauses in your lease or if you have no detailed written lease at all, the whole field is wide open, and you’ll have to negotiate everything after the event.
That goes for any aspect of the tenancy.
There’s no end of potential for disagreement, which naturally some lawyers like because it means bigger bills, but why let them do it?
Get some advice early on and protect your business from distracting and expensive difficulties later.
Running a successful franchise is never easy, but franchise companies can make it harder work than it should be. Before you confront the franchisor directly, or do anything else, read this, and call us.
Unfortunately, having problems with a franchise or franchise agreement is far more common than it should be. Even if you’ve done your research, carefully read the franchise agreement and taken with a large pinch of salt just about everything you were told by the franchisor’s representative you might still find it difficult to work.
Typical complaints from franchise holders are the additional obligations imposed by the franchisor, or despite putting in a lot of work you find you’re unable to make ends meet. Those and other issues often lead franchisees to believe their franchise fails to live up to the picture that was sold to them at the outset.
If you’re feeling fed up with your franchise we’ve got some good suggestions
However disappointing your franchise or frustrating you find your franchise agreement, there is a right way — and several very wrong ways — to go about seeking better terms or even an exit.
Don’t flame your franchise
Resist the urge, however strong, to go on social media or the internet making allegations about the franchisor or name calling.
Don’t raise a posse
It’s an equally bad idea to try to rally the rest of the network against the franchisor without having taken legal advice – it may be a possibility but needs thinking through first.
Don’t walk away
Telling the franchisor you are terminating the agreement without have taken advice on your right (or lack of) to do so could result in heavy penalties.
Don’t hit them in the pocket
You’re in a contract, so you can’t stop paying your franchise fees without first taking advice on the possible consequences.
Don’t shut the door
No dispute was ever settled without a conversation – it’s important to keep talking with the franchisor.
If you do any of the above you may well find your franchise agreement is terminated for breach of contract and you are on the hook for damages.
You might also find your conduct makes it more difficult to reach a swift and amicable resolution of your problem with the franchisor and limits the options any solicitor will have.
So what can you or should you do to prepare the ground for battle with a franchisor?
Keep a diary
Keep track of all the events and issues that highlight why you are unhappy with the agreement.
Dig up the details
Go through your paperwork and pull together any email evidence, your franchise agreement and any sales material that you received about the franchise.
Try to see things from both sides
Consider what would resolve your problem and what you and the franchisor might need to do to reach an amicable resolution, and be clear on your ideal outcome.
Get an expert opinion
Above all else take legal advice on your position before making any decisions or seeking to extract yourself from the franchise. Ensure you get advice from a franchise specialist who has dealt with many franchise cases.
Early advice on your position will help you understand your options, risks and possible solutions. It will also prevent you from making costly mistakes which may be hard for a solicitor to undo once it is too late.
Business partners don’t always share the same ideas, but one thing everyone should agree on is a shareholders’ agreement.
In the realm of the probable for any business shareholder differences loom large. However agreeable everyone may be at the outset, differences often emerge over matters that can be vital to the business, its growth and success. Sometimes those disagreements turn ugly and you start paying for lawyers for all the wrong reasons.
Far better to simply set out the ground rules between one another and the business as an entity (at the outset if possible) and prevent future difficulties threatening its stability.
The shareholders’ agreement is the common form for that, but it should be bespoke, drafted specifically for your business, to protect your interests and meet the needs of the business.
The most important part is to understand the business when drafting the agreement and to think long and hard about a range of possible scenarios for its development. That doesn’t mean it has to be a lengthy and cumbersome document, but more that it is in tune with your business needs and aims.
Whether you’re dealing with things like a director leaving, or someone wanting to sell their shares, a shareholders’ agreement can make the process smoother.
The agreement can help with many issues your business might face, such as diluting share capital in order to gain investment, selling shares, or what to do if someone leaves the business. The agreement creates procedures for what will happen should any such events occur. And because it is a contract to which all the shareholders have agreed, there’s no room for argument.
Maintain control of the business
Not surprisingly, the first provision you ought to make is to ensure that your company’s shares don’t end up in undesirable hands. It’s common for shareholders’ agreements to include provision for compulsory purchase by the remaining shareholders should a director leave. But you can go further and determine the relative price of those shares if the person is leaving on good terms or bad.
Prevent others stealing
It is equally likely that you’ll want to prevent shareholders from setting up in competition and enticing away customers or employees while they are shareholders or for a period after they leave.
Keeping plans on track for the good of the business
While you’re all drafting the agreement and signing up to it is a good time to make plans for what happens when you’re not feeling quite so nicely nice. Breaking deadlocked debates between shareholders is easier if there is a clear policy laid out.
You might choose to invite a third party to help or include the right of one or more shareholders to buy out the others should they not agree with a big decision for example of borrowing, or a change to strategic direction.
Choose how and when to sell
Your agreement could also contain the terms of a sale, for example giving rights to shareholders to compel a minority shareholder to sell, or on the other hand for the minority to force a purchase should a majority shareholder want to sell a certain percentage of the company’s shares to an outsider.Whatever happens, get it written down
You can’t tell how your business will develop nor how your shareholders might change over time, and shareholders can be a difficult bunch.
You might have tedious grumblers that slow your progress or others who end up downright hostile and threaten to break the engine, but if you’ve got your shareholders’ agreement in the drawer you know you’ll be able to handle them all.
Let’s be clear right from the off, we’re not talking about holidays here. This is a life and death case study about a sole shareholder and director of an engineering company who was killed in a skiing accident. But that was only the beginning…
The client died without a will in place and left a widow and two children under eight.
Contrary to popular belief, a spouse does not automatically inherit all property and money when there is no will and there are children. The children share the estate with the spouse.
Without an order of the court, which is expensive, time consuming and offers no guarantee of coming out in favour of the spouse, the estate cannot be re-distributed to the spouse.
What is more, all the assets of the deceased including business interests are frozen until a Grant of Representation is obtained.
As children are benefiting from the estate, the spouse and a third party must apply for the Grand of Representation to become administrators. All decisions are then made by them equally.
What happened next is no less devastating…
The spouse and her brother-in-law, who was the joint applicant for the Grant of Representation, did not see eye-to-eye on priorities. The deceased’s brother took the view that his role was to protect the children’s interests against the spouse who might remarry. (What logic!)
While they were arguing over the business things got worse. Without the owner, day-to-day activities simply ceased. Salaries were not paid and even the most loyal employees had to leave as nobody could say when or if they would be paid. There was no-one with the authority of a director to make decisions and take action. The order book, which had been full, simply evaporated.
The administrators’ differences of opinion led the thriving engineering business to be sold, and at a fraction of the value it had immediately before the death of the director.
If there had been only two documents in place this could all have been avoided.
So, get a will
If you own a business, and even if not, get a will written. In it make sure you appoint people who can be relied on to understand the needs of your family, the requirements of your business and to represent your wishes for both.
And establish a power of attorney
A power of attorney for the company should enable appointment of someone to step in as director to keep the business running.
People put these things off because they either think they’ll not need them, or they don’t like thinking about the subject.
Well, you only have to think about it for a few hours, and we’ll do all the paperwork and you can just get on with life. That wouldn’t be so bad would it.
For wills, lifetime planning and powers of attorney, call us—I hesitate to say before it’s too late, but that about sums it up doesn’t it: