It doesn’t matter what the size of your business is, how much or little your turnover, how many or how few employees you have, every business, once it ‘s trading, should have a number of contracts in place to protect itself, its employees, suppliers and contactors from any legal disputes.
When establishing a company, there should be a Memorandum of Incorporation which gives the company its legal status, whether a public Limited Company (plc), Not for Profit Organisation (NPO) etc. This document includes information regarding shareholdings, directorships and their roles and responsibilities and should be amended when there are any changes.
A separate shareholders’ agreement will outline the distribution of shares and details of the accounting officer or auditing firm that the company has engaged.
As an employer, small businesses must adhere to all labour related legislation and must have contracts of employment in place with employees, whether they are permanent or fixed term in nature.
If a small business is using independent contractors, they should draw up service level agreement contracts with them that cover the product or service that the contractor is providing and how they should provide it. This includes whose resources /tools they must utilise in the delivery of that service. The frequency of invoicing and terms of payment should be included. It should be clearly stated that independent contractors do not have the same rights as employees in terms of leave. Independent contractors generally are responsible for their own tax liabilities.
If the company is providing a product or service on a regular basis directly to clients, there should be service agreements for these in place. These contracts protect both parties and speak to the provision of the services and expected standards, including warranties and guarantees as well as payment terms.
Similarly there should be contracts in place between a small business and its suppliers. In this case, the contracts will be drawn up by the supplier (in effect it is their client agreement the same as the above) Nevertheless, small businesses can make their inputs regarding some of the terms and conditions of engagement.
It is easy for entrepreneurs trying to run a small business to overlook some of the details relating to administration and the management of employees, clients and service providers. However, it is imperative that small businesses set themselves up from the outset with all the necessary contracts in place that will save any legal disputes later down the line. Under no circumstances should small business rely on verbal or ‘gentlemen’s’ agreements.
Louw and Heyl can assist small businesses with the establishment of the company and the drawing up of all the necessary contracts that may later protect them from costly litigation.