The Eight Most Common Disputes for Small Businesses
I have written extensively on how to resolve business disputes, but not much on what those disputes actually are. The purpose of this article is to make you aware of the conflicts that you may face when running your small business, and affirm that you are not alone if these issues do come up.
Dispute #1: Debt Collection
Unpaid invoices from customers are one of the most frustrating things that small business owners can face. Debt collection also involves disputes over overdue accounts, delayed payments or withheld funds. These issues commonly arise when payment terms are not clearly defined or enforced. These disputes can arise when there is confusion surrounding when payment is needed, in which a clearer contract needs to be drafted. In the case that a client simply forgets or refuses to pay, then legal action can be taken.
Dispute #2: Contracts
Contracts are at the heart of all commercial relationships. Disputes can arise when drafting a contract or afterwards such as breaches of contract, differing interpretations of the contract or failure to meet contractual obligations. This is why it is so important to have a simple and straightforward contract for every business transaction that you go through. All parties should review the terms carefully and confirm that they understand and agree with the obligations being set out. A commercial lawyer can help you draft a comprehensive contract and also help manage disputes if they do arise.
Dispute #3: Partnerships and Shareholders
Oftentimes, business partners will come into conflict withe terms of partnership agreements and shareholders’ agreements. This is why I always espouse due diligence! Before you commit to going into a business partnership or introducing a shareholder, ensure that your values, expectations, management style and long-term goals align. Well-written partnership and shareholder agreements are also crucial. These disputes can still arise among like-minded people with a sophisticated contract, however. If you find yourself in a dispute with a partner or shareholder, do not immediately assume that you were wrong to include them in your business! The most important thing is to resolve the dispute as quickly and cost-efficiently as possible, lest it cause long-term damage to the business.
Dispute #4: Intellectual Property
Your business’ intellectual property includes all intangible assets you may have including any new products, services, processes or ideas that you develop. They are legally protected, meaning that nobody can use your IP without your explicit permission. However, as a small business owner, you may feel that your IP is under threat from bigger companies. This is why it is crucial to register your business’ IP through patents, trademarks or design registrations where applicable, and to understand that copyright protection arises automatically upon creation. Equally, using a logo, slogan or other material that is already the intellectual property of another business can bring your business into dispute. Sometimes this can be done without even realizing it. For this reason, it is important to conduct thorough searches, including through IP Australia’s databases, for any potential IP conflicts before adopting branding or other materials.
Dispute #5: Employment
Australian employment law is complicated! It is common for small businesses to run into legal issues surrounding employment by accident. Small businesses are defined as those with fewer than 15 employees under the Fair Work Act, and while hiring practices may be less formal in smaller workplaces, compliance with employment law is still essential. Even if you do not think it is necessary, a written employment contract is strongly recommended for all of your employees from full-time workers to casual ones. Employment contracts should stipulate employee rights, responsibilities, potential benefits, salary, potential reasons for termination, restraint clauses and any other clauses relevant to your business and their position. With all of this information in writing, you decrease the likelihood of a legal claim against you.
Dispute #6: Incorrect Tax Declarations
You may be conjuring a number of scary words and phrases in your head upon reading that. The most important thing to know is that tax mistakes are more common than you think, and usually by accident! Tax laws in Australia are intricate and constantly evolving, making it easy for businesses to make mistakes in their declarations. Key risk areas include incorrect or late GST registration, poor record-keeping, PAYG withholding obligations and superannuation guarantee requirements for your employees. There are a number of things that you can do to mitigate this risk. Keep all financial records for at least five years, as required by the ATO, together in a secure location. You should also understand what your tax obligations should be before you register your business. These obligations will be different depending on what business structure you choose. When it comes to filing your taxes, you will never regret hiring an accountant or registered tax agent to assist you through the complicated legal requirements.
Dispute #7: Consumer Law Compliance
Consumer law is, you guessed it, complicated! The Australian Consumer Law (ACL) relates to the safeguarding of buyers of goods and services against unfair and deceptive practices. Consumer law introduces dispute when your business faces accusations of misleading or deceptive conduct and breaches of consumer guarantees. Consumer law is ever-changing with complicated industry-specific legislation and local regulations. For these reasons, it is crucial to consult a lawyer to avoid any costly disputes.
Dispute #8: Licenses and Permits
Each industry has specific licenses and permits that you need to sell your goods and services in that area. You must operate within a framework of legal permissions and industry-specific regulation. These licenses and permits exist to authorise your commercial activities, ensure safety compliance and protect your business against lawsuits. They range from trade licenses to food permits to health permits. If you are operating on a commercial lease, then you also need to be aware of the permitted use clause in your lease agreement. This clause dictates what you can and cannot do on the premises, and often involves clarification with your landlord.
It is a common misconception that business disputes only arise when the business owners have deliberately participated in illegal activities. This is not the case! Disputes can arise by accident even when you have done all of the necessary due diligence to prevent it from happening. What matters most is how you deal with those disputes, and the legal advice that you take on board.
If your small business is currently going through a dispute, or if you have any questions, please do not hesitate to contact us. We are here to help.
DISCLAIMER: This article is for informational purposes only and does not constitute legal advice.