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Protecting your Company from Insolvency – What are the Potential Risks?

Commercial Law

When it comes to running a business, it’s important to recognise that loose contracts can leave us open to a lot of unnecessary risk. The team at AV Lawyers have put together a collection of the legal documents and inclusions your business needs to protect itself.

When operating a business, loose contracts and dishonest deals can leave an entire company open to risk – both from government audits or legal suits brought against the business. No one wants to be exposed to risk, and one of the best ways to protect yourself and your assets to is structure tight agreements both internally and externally.

Here are several contractual concepts and inclusions that you can use to reduce the level of risk to your company.

Shareholder and Partnership Agreements

Partnership (for partnerships) and shareholder agreements (for limited companies) are designed to protect the rights of all stakeholders from the creation of the company, through to the potential sale. It will have clauses that include (but are not limited to):

  • Funding and contributions of each person
  • Percentage of ownership
  • Director appointments, rights and provisions
  • Management obligations
  • Financing and dividends
  • Buy-sell provisions
  • Transfer of shares and restrictions
  • Confidentiality
  • Exit strategy
  • Default
  • Disputes and deadlocks

A clear agreement will allow your company to operate smoothly and reduce the likelihood of disputes in the future, especially if some parties wish to exit or sell the business.

Employee Contract

Employee contracts establish the working relationship between your business and the employee, setting out important information such as remuneration, hours of work, leave entitlements, restraint of trade, responsibilities and obligations. It can also include a policy manual which outlines expectations around dress code, harassment, internet use and discipline upon failure to adhere to said policies. A well-written contract will thus protect your company in three ways:

  1. It is a formal reminder to your business to legally comply with National Employment Standards as outlined in the Fair Work Act in relation to leave and entitlements.
  2. It protects your business from breaches of confidentiality or misuse of company assets.
  3. It ensures that you are better equipped to defend against potential claims of a breach of employer obligations.

Service Contracts

If you provide services to another business, you will recognise the value in an airtight service contract. This document will outline the terms and conditions under which your business will provide services, as well as the liabilities and responsibilities of both parties. It should also include clauses that outline:

  • Key dates
  • Rights and obligations
  • IP and confidentiality
  • Payment (amount, payment timeline, and additional fees)
  • Termination provisions
  • Indemnification and limitation of liability
  • Waivers
  • Non-solicitation

The more detailed the contract, the more your company will be protected from potential legal and financial disputes in the long run.

Sale of Goods Contracts

If your business provides goods and products, you will require a well-written contract which needs to be available to your customers (you can usually include this on your website). It should include information regarding:

  • Items for sale
  • Prices of products
  • Delivery and/or collection
  • Exchange, returns and refunds

Doing so will ensure your compliance with Australian Consumer Law, which requires you to give certain guarantees to customers regarding ownership and fitness for use.

Invoices

Different from sales of goods or services contracts, invoices serve as a proof of transaction. The document will clearly lay out:

  • Goods or services provided
  • Price for goods or services
  • Payment terms and methods
  • Late payment terms (if applicable)
  • Refund and exchange policy (if applicable)

Proper invoicing will not only protect your cash flow by prompting payment from your clients and customers, it will also ensure you are maintaining good records and meeting your tax obligations. For example, if your company is registered for GST, you will need to issue a tax invoice (as opposed to a regular invoice) which details the GST amount for each item.

Website Terms of Use & Terms and Conditions

Including Terms and Conditions, as well as Terms of Use, on your website is necessary for any business that has an online presence. Although the terms are sometimes used interchangeably, they each cover different areas.

Under Australian Law, your website Terms and Conditions must include:

  • A statement that you comply with Australian Consumer Law
  • How you will provide a refund, repair or replacement (if required)
  • Details of your guarantee
  • Details of your warranty (if required)

Your website Terms of Use will cover:

  • Copyright and IP protection
  • Disclaimer of liability
  • Details on how people may use your site
  • Service interruptions and updates
  • Term, termination and survival
  • Treatment of data
  • GDPR (if interacting with users in Europe)

Doing so will not only ensure your compliance with Australian Consumer Law and limit your liability, but will also protect your IP and content and allow you to handle abuse from users.

There are a wide range of legal documents that can protect your business from liability and any perceived risks. Act now and contact the team at AV Lawyers today.