Senior or executive staff resigning and taking valuable customer and confidential information with them could result in extensive damage to a business. Post-employment restraints or restraints of trade clauses, that come into effect after employment ends, can protect the legitimate interest of the employer.
Six Common Pitfalls Your Business Must Avoid
Are You A Business Owner? Please Avoid These Six Common Mistakes
Please consult Allied Legal’s business lawyers in Melbourne for assistance
1. Inappropriate business structure
In our experience, far too many business owners commence operation without considering the most effective business structure. It is strongly recommended that you seek specialist advice on the most suitable structure for you. Here are some reasons why structuring advice is critical:
(a) The right structure can protect your personal liability.
(b) For tax planning reasons.
(c) To make it easier to expand the business in the future.
Please contact our experienced commercial lawyers if you require advice on business structures: http://alliedlegal.com.au/contact/.
2. No Shareholders Agreement is in place
Before founders do any significant work together, it is critical to put into place a written agreement which sets out the roles and responsibilities of each respective party. Shareholders Agreements are a simple and effective way of providing clarity regarding important aspects of the relationship. The agreement will set out issues such as ownership percentages, how key decisions are to be made, governance and management protocols, how profits will be shared and what happens in the event of dispute. Allied Legal’s commercial lawyers in Melbourne have expertise with such agreements.
3. Inadequate employment arrangements
Failure to correctly classify workers as employees or contractors can have legal and tax implications. Serious liability can result from such misclassifications, including harsh penalties. The ATO provides guidance on the difference between employees and contractors here: https://www.ato.gov.au/business/employee-or-contractor/difference-between-employees-and-contractors/. However, this is an everchanging area of law and specialist advice should be sought if you are unclear about how to classify your workers.
Further, we strongly recommend that your business invest in employment agreements prepared by a specialist employment lawyer. After all, your employees are your most important assets and employment agreements serve as the foundation for your relationship with your employees. A well-prepared agreement will include provisions in relation to (among other things) whether the worker is being hired as an employee or contractor, mandatory provisions required by law, details about leave entitlements, restraints of trade (see below) and clear termination provisions.
Seeking timely assistance from an employment lawyer can avoid the above pitfalls. Contact Allied Legal if you have any questions: http://alliedlegal.com.au/contact/.
4. No reasonable restraints of trade
Post-employment restraint clauses or restrictive covenants are commonly used by employers to protect their business interests. In too many cases, businesses fail to consider putting in place reasonable restraints of trade in their employment agreements. This puts at risk the company’s goodwill and business relationships. However, please seek advice prior to implementing such provisions. This is because courts will not uphold an unreasonable restraint of trade clause that restricts competition per se, or unduly interferes with an employee’s right to sell his or her own labour. Accordingly, seeking specialist advice from an employment lawyer is strongly recommended.
5. A failure to protect intellectual property
Failing to safeguard confidential and trade secret information can be hugely detrimental for businesses and business owners. We see such oversights all too often and strongly recommend that you seek timely advice from a specialist intellectual property lawyer: http://alliedlegal.com.au/contact/. Entering into appropriate arrangements with workers and ensuring the registration of your businesses’ intellectual property (where appropriate), are important steps which can be taken with the help of a lawyer.
6. Failing to put in place a buy-sell agreement
The exit of one or more founders from the business can cause major disruption. This can occur in the event a founder passes away or experiences a long-term disability. However, arrangements can be put in place to avoid disruption. It is critical to put such arrangements in place prior the exit event being on the horizon. A buy-sell agreement prepared by an expert at the outset (usually in conjunction with a Shareholders Agreement) can effectively account for how the company will proceed in the event of unanticipated change. Please contact Allied Legal’s commercial lawyers who have expertise with such agreements.
Contact Allied Legal
The above is an overview of some of the common pitfalls we commonly see businesses and their owner encounter time and again. Allied Legal’s business lawyers in Melbourne can help you with these and other issue. We provide free 30-minute initial consultations to help understand your business needs. Please contact us when you are ready: http://alliedlegal.com.au/contact/.