Dear Business Owner, Have You Done Your Yearly Legal Health Check?
For me personally, the last quarter of the year is specifically reserved, among other things, for reassessing my firm’s progress, targets set and achieved, profits and expenses and also putting in place the plans for the coming year.
Another area that I believe is fundamental to any successful business is what I call “The Legal Health Check”. What is this and why is it so important?
Legal Health Check is a fancy phrase for a legal audit done internally or with the assistance of your trusted legal counsel on the well-being of your company’s legal affairs.
It is so easy to badly manage a business or a company. Once your company or business is badly managed you are directly exposing yourself personally as well as your business to various legal risks as well as unnecessary cost, losses, expenditure, loss of knowledge and possible statutory or regulatory breaches. The effects of a badly managed business are far- reaching and can in some situations take years to rectify/remedy.
The advice here is to be constantly aware and apply your mind to a couple of key areas when you are performing your own Legal Health Check. Here are some of them:
a. Have you complied with the relevant statutory regulations & laws?
More often than not as business owners you may not be aware of the changes in a law that may have taken place and as such need to be advised by your legal advisers on the latest legislation or amendments to any current legislation that concern the industry you are in and the services you render. For example, if you are in the Fintech industry you may want to find out what are the latest financial and banking regulations and laws. Get advice.
b. Partnerships/shareholding agreements
You may want to make it a yearly affair where you have a discussion with your partners/directors on their roles, scope of work, performance, and entitlements. This keeps everyone on the same page and is an easier way to address partnership issues early on and make those necessary changes to the business structure. Please ensure that you have a written partnership and/or shareholders agreement. Ensure that your agreements adequately deal with matters such as buyouts, raising capitals, succession, put & call options and exit clauses. Your partners/directors must also be fully aware of their duties and obligations under the laws.
c. Trade creditors and debtors
By this time of the year, you must know who owes your company money and how you intend to collect these unpaid debts. Have a list of creditors and send out letters of demand. Start the process of recovering monies for services rendered or products already sold. The longer you wait, the harder it will be to collect these debts. For those creditors who for whatever reason cannot pay you in full. Speak to them about an installment plan and get a settlement agreement drafted to confirm the installment terms. If possible collect postdated cheques.
d. Employment Contracts
When was the last time you reviewed all your employee’s contracts? It is pivotal for you to know what your exposure as a company or business is to an employment dispute. It is also important for you to know the processes and procedures that you need to carry out before you terminate a belligerent employee. Other issues you may want to think about would be the requisite statutory deductions, for example, EPF, SOCSO, and tax.
e. Intellectual Property
Whatever industry you’re in, it is prudent to consider registering your trademark and tradename. As your business gains popularity and people on the street start to recognise your brand and name, it is inevitable that a competitor may want to benefit from your goodwill and jump on your bandwagon to gain some traction. You do not want a competitor to proceed to use your name and logo in a similar industry and reap the benefits and goodwill off your hard work. So please consider securing your intellectual property rights.
f. Written Agreements
Always have your documentation up to date. Review the terms of your Purchase Orders, Invoices, Supplier Contracts, Equipment/ Machinery Leases, Rental Agreements. It is important that at all material times you are aware of your key suppliers and key customers. Review their contracts constantly because there may be renewal clauses in those contracts that may have slipped your mind, which could cause you undue losses.
There is no such thing as a ‘one size fits all’ when it comes to legal matters. You will need to design your own Legal Health Check which is suitable for your own business or company. And like a well-tended garden, you will need to constantly prune, remove and regrow your legal structures to ensure that it is in order.
Also, do note that a detailed examination of these key areas will help you identify any danger or grey areas which will then enable you to circumvent or reduce any potential risks and liabilities to your business.
Have a great year ahead and don’t forget to start your Legal Health Check before the year end!
FOUNDER OF MESSRS RAVINDRAN