The Step-by-Step Guide to Constructing a Legally Valid Business Contract

The Step-by-Step Guide to Constructing a Legally Valid Business Contract

The Step-by-Step Guide to Constructing a Legally Valid Business Contract

A specific and comprehensive contract can avoid a whole raft of issues. Business challenges between employees, suppliers and customers are all avoidable, with a clear contractual agreement that both parties are comfortable with.

There are several essentials that you should include in every business contract, including:

    • The actions required from each signatory.
    • Timescales involved.
    • Fees charged for delivery.
    • Clauses for returns or refunds.
    • Payment terms.
    • What happens if either party does not produce.
    • Late payment clauses and conditions.
    • The correct route to resolving disagreements.

While there are thousands of business contract templates online, they are rarely (if ever!) sufficient to protect the interests of your company.

Legally enforceable contracts make a world of difference when things go wrong, ensuring that every clause contributes to a factual instance of contractual breach.

Today The Law Firm Group looks at each element of a future-proof business contract to help you work through your documentation step-by-step.

1. Business Contract Offer and Acceptance

Contracts rely on evidence that each party intends to enter into a contractual relationship and agrees to be bound by the terms.

Offers can be verbal, but written contracts are much easier to prove in legal conflicts.

The intention must be clear since ambiguity can cause a challenge. Specific terms are key, as are records if you enter into a contract any way other than in writing.

Acceptance of a business contract must also be demonstrable, including an agreement to the established terms, with proof that every involved company took on the mutual understanding about what they, and the other parties, would deliver.

2. Establishing Contractual Consideration

Consideration means the payment made for services rendered or goods delivered. Payment doesn’t always have to be financial, but you need to evidence what you expect to receive.

For example:

    • Your business contract includes marketing of your enterprise in return for reduced price products.
    • The consideration is the reduction in revenue for the same item.
    • You need to prove that your customer has accepted the terms and agreed to provide marketing services in return for price reductions.

3. Entering Into Business Contracts With a Representative of Legal Capacity

Capacity comes into play if you end up with a conflict.

In essence, anybody who enters into a contract needs to have the authority and power to agree to the terms and commit the business to the agreement in question.

Examples include minors or individuals without the capacity to make informed judgements. Such a person cannot enter into any good faith agreement with an understanding of the commitment they are making.

It isn’t always easy to check the capacity of another enterprise, but a commercial solicitor can recommend steps to clarify whether your contract holds weight under this requirement.

The takeaway is that entering into a business contract with a person without sufficient legal capacity generally means your contract is void.

4. Commercial Contract Terminations

Whatever the nature of your contract, there should be provisions for terminating the contract. That means looking at:

    • Events or occurrences that mean either party cannot meet the terms.
    • Notice periods to request a contract termination.

Termination clauses are often overlooked but can give rise to numerous challenges, whereby you don’t have the legal grounding to dispute the termination without evidence in your business contract to back this up.

Another issue is deciding which scenarios to add to your contract and what exact situations would constitute a fair contract termination event.

The goal is to ensure you don’t end up in a situation where you are contractually obliged to fulfil a contract that you cannot.

5. Contractual Damage Provision

There is always a chance, even in the most long-standing agreement, one party to a business contract might fail to meet the terms, either intentionally or not.

Commercial contracts should always include a clause relating to damages, often precluding any necessity for formal court action but reinforcing your position if the other party does not meet their obligations.

This clause is a backup if things go wrong, but the aim is to encourage any party to meet the terms, thus avoiding legal action set out in the agreed contract.

Breaches of contract can be highly complex, so you’ll need to be precise. For example, is a delivery two days late a cause to claim damages? How about a week or a month late?

This decision means looking at material and minor contractual breaches, so legal advice is recommended.

As well as identifying situations where failure to deliver constitutes a breach, companies need to think about how they’d handle this situation.

The ideal is that the party that breaches the contract must pay damages equal to the costs and issues caused.

6. Establishing Commercial Contract Legalities

To hold weight under pressure, a business contract must be legally enforceable.

That means the transactions involved are legal without falling into a grey area.

If any transactions, agreements or processes are potentially unlawful, we recommend seeking legal advice. A contract that refers to any systems outside of regulated business activities may not be enforceable.

Understanding the Crucial Elements of a Business Contract

Template contracts and standard terms don’t cut it when it comes to putting arrangements in place of a commercially significant value to your business.

Vague contracts, the lack of a clear agreement, signatures from unauthorised representatives, and an absence of termination clauses can cause no end of headaches.

To be able to chase payments, seek damages or claim reparations for delays that have caused financial damage to your company, you must have a legally valid contract in place, compliant with each item on our step-by-step guide.

Comprehensive contracts may take a little time to construct. Still, they can be a saving grace when disputes arrive, giving no room for manoeuvre on what you expect and what the related business has agreed to deliver.

For more assistance creating exacting business documentation to ensure all your key contracts operate to the benefit of your business, please get in touch with The Law Firm Group.

Our capable commercial solicitors can advise on every aspect of contract law, setting you up for a successful future, whatever challenges come your way.

Call or email us to talk about it. 0300 303 3805

The Essential Legal Requirements in Buying a Business

The Essential Legal Requirements in Buying a Business

The Essential Legal Requirements in Buying a Business

Buying a business is far more complex than purchasing most other assets – and it’s highly advisable to seek legal guidance to ensure you’re confident that you’ve ticked all the boxes.

For example, the purchase itself might not be straightforward:

    • Are you buying the business entirely, including all operations, branding, goodwill, equipment and intellectual property?
    • Or, are you purchasing business shares – and, if so, does that mean you’re buying ownership but not the assets involved in running the company?

While that might seem like a technical difference, it could be fundamental to your position as a business investor and impact things like your liabilities, obligations and returns.

Today The Law Firm Group explains some of the multiple decision-making factors when buying a business and how to inspect each aspect of the purchase from a robust legal perspective.

Due Diligence on Business Acquisitions

First, before any contracts are signed, you’ll want to conduct due diligence.

That includes identifying any underlying issues with the business, which may be glossed over in the sale particulars.

There are lots of resources and options available to get a feel for the company and perhaps reinforce your understanding about why the current owner wishes to sell:

    • Researching the market – is demand stable, are the products or services likely to become redundant, is there sufficient opportunity for expansion or diversification?
    • Assessing the competition – are there an overwhelming number of rival businesses, or is the market flooded with competition that makes ongoing profit unlikely?
    • Investigating price stability – can you realistically expect stable or increased revenue, or are prices and margins volatile and subject to sudden changes?

This stage is similar to a risk assessment and is key to making sure you have a firm grasp of the future business prospects before making a confirmed offer.

Determining Legal Actions Around Contract Transfers

If you’re buying company shares, this won’t typically require legal work around contracts held between the business and third parties.

However, if the purchase constitutes a full business acquisition, multiple contracts may need to be assigned or transferred to you as the buyer.

Examples include:

    • Landlord’s or mortgage lender’s consent

If the business operates from a leasehold property, it must often assign the lease to the new owner by liaising with the landlord.

Likewise, a mortgage agreement may require renegotiation depending on the trading structure and whether the current owner has a guarantor or personal guarantee in place.

    • Contracts of employment

Many business investors will look for opportunities to maximise efficiency and transform a company into a more profitable enterprise.

Employment contracts are protected under the Transfer of Undertakings Regulation 2006 (TUPE).

Therefore, you’ll need to assess the terms of employment currently in place and seek legal advice if you have any intention of revising those contracts.

    • Commercial contracts

Businesses tend to have contracts to supply goods or services and for inbound purchases. These contracts may not necessarily transfer along with other business assets.

Third parties may have a right to cancel or rescind a contract, and therefore preparing the ground before the sale is important so that you as a buyer will continue to benefit from these agreements.

Legal Paperwork Required for a Business Purchase

Another essential factor is to ensure you have access to all of the core business acquisition documentation for perusal by an experienced solicitor or lawyer before you go ahead.

Exclusivity Agreements

Normally, that might include an exclusivity agreement, which gives you a specified period to conduct sufficient investigations without the seller seeking another buyer or negotiating with another interested party.

Exclusivity can be included as part of the general sale terms.

Still, it can also be a standalone agreement, which means you have the comfort of a time cushion to carry out all the required assessments.

Confidentiality Agreements

Confidentiality agreements are also typical and protect the commercial sensitivity of a business sale or ownership transfer.

Buyers must scrutinise every element, including finances, debts and assets. Confidentiality is often a condition of sale and ensures that a potential ownership change is not leaked too early in the process, causing concern and disruption.

As always, we’d suggest seeking legal advice before committing to any obligations outlined in a confidentiality agreement.

Disclosure Documentation

Disclosure letters normally cover a broad scope and include things like:

    • Liability limitations
    • Restrictive covenants
    • Indemnities
    • Warranties
    • Tax indemnities

You’ll also need to know about the exit strategy of the seller and whether, if you buy a business through a share purchase agreement, that incorporates all of the assets and obligations associated.

Therefore, share purchase agreements should include all of the information as in a disclosure letter to ensure you are legally covered and understand the purchase structure.

Further, you’ll need to know whether the purchase of the assets constitutes a taxable supply, subject to VAT.

Usually, you won’t be liable for additional VAT charges, provided you’re buying the assets to continue carrying on the business or where you’re buying a separate branch of a company that can operate independently.

Understanding the Legal Aspects of Business Purchase Agreements

Once you’ve carried out comprehensive evaluations, agreed on pricing, and a payment structure, the next step is to work through the business purchase agreements and contracts.

Note that payments may be complex and often include a blend of share transfers. This agreement requires legal guidance if you are paying other than via an outright cash investment, so there is absolute clarity for both parties.

We’d typically recommend pushing for completion as quickly as possible since a seller may lose interest in managing the day-to-day operations, so it is beneficial for the buyer to gain control promptly.

However, the costs of business investment mean that it will pay dividends to take care over inspecting each contract before proceeding:

    • Acquisition agreements define the purchase terms and itemise the sale details, including time frames, warranties, and other specifics that the seller should include in the initial disclosure.
    • Asset agreements, setting out each asset, such as stock, machinery, creditors and debtors, staffing, client contracts, assignment deeds for lease contracts and landlord consent where applicable.

Finally, the completion documents should follow a set schedule since you’ll need to organise a range of practical actions such as preparing board minutes for share transfers, organising VAT, PAYE and National Insurance obligations, and other formalities.

It may sound that there is a vast amount of documentation and research, but methodically progressing through each of these steps is important to ensure the business purchase runs smoothly and you have access to all the information you require to make clear decisions.

Having the right legal advice can remove much of the legwork, with an experienced solicitor to review each contract and provide independent advice to protect your position.

For more information about securing your legal interests during a business acquisition or any advice about the sale processes listed here, please get in touch with The Law Firm Group for bespoke support from the legal experts.

Call or email us to talk about it. 0300 303 3805

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Commercial disputes can be extremely complex and involve substantial costs, reputational damage and harm to previously successful business relationships.

Finding a swift, fair and enforceable resolution is in the interest of all parties.

Even if you have a valid claim or have grounds to reject a claim made against your business, it is important to present a watertight case to avoid future issues.

In this guide, The Law Firm Group explains the process for resolving a commercial dispute, with a checklist to ensure you have everything you need to succeed.

Commercial Dispute Basics

Before we get into more detail, let’s rewind to step one, when a dispute first arises.

Usually, this begins with an informal notice, such as a request for an unpaid invoice to be settled.

Disputes require a paper trail to evidence that attempts have been made to resolve the problem before escalating. If you haven’t tried to resolve a conflict at the early stages, it may be challenging to progress things further.

Where these efforts have proven unsuccessful, the claimant will need to consider the costs of legal action compared to the benefits of seeking legal support to recover damages, expenses, or monies owed.

Solicitors often use a pre-action letter to gently caution that the claimant will make a legal claim if the matter is not concluded by a finite date.

Sending a Letter Before Action in Business Conflicts

Issuing this letter does not constitute the start of litigation, and rather, it is an attempt to reinforce the claimant’s position, demonstrating the legal basis for the claim.

If you receive a letter before action, we recommend seeking legal advice immediately, as the time limits are not negotiable, and you need to respond as quickly as possible.

Proceeding to Court Action to Progress a Commercial Dispute

Should an agreement not be forthcoming, court processes can begin. This is a critical stage in a commercial dispute and usually avoidable with decisive, swift action and a willingness to negotiate.

Once you initiate or receive notice of court proceedings, you are subject to the court’s regulations around paying for costs.

At this step, a claimant will prepare a formal legal case by filing a claim form and the particulars, which explain their argument and why they are seeking a court-ordered outcome.

Defendants must respond to the claim within 14 days of the notice being served, to submit a defence, or acknowledge the court action.

The Commercial Dispute Resolution Checklist

For most businesses, avoiding an expensive, public, and potentially lengthy court battle is highly preferable, so putting together your claim or defence is key to a quick and acceptable outcome.

If you have received a letter before action or wish to initiate a claim, this checklist will help ensure you have all the background information ready.

1. Review contracts and agreements It’s crucial to refresh your memory about any contracts, agreements or negotiations concerning the conduct between the two businesses.

Many disputes involve confusion over the clarity of contracts, so going back to the original documentation is important to identify how either party has broken the agreement and when.

2. Assess the loss Whether as the claimant or defendant, you need to know the costs involved to make decisions about a settlement agreement, out of court negotiations, or proceeding to litigation.
3. Collect evidence The more written documentation, the better!

Collect everything relevant to the situation, including emails, meeting minutes, contracts, agreements, statements referring to phone calls or verbal discussions, purchase orders, remittances and reports from other colleagues.

4.  Negotiate If you can reach a mutually agreeable decision before litigation, you usually both stand to save a considerable amount in court fees.

We suggest recording negotiations with letters and notes, or minutes, agendas and meeting records to avoid further conflicts or misunderstandings.

5. Consider alternative dispute resolutions The commercial team at The Law Firm Group can advise on out of court agreement processes, including arbitration or mediation, which may help reach an amicable solution without the expense and publicity of a court process.
6. Identify likely outcomes It’s essential to think about the likelihood of reaching the solution you are aiming for.

For example, if we consider the example earlier about an unpaid invoice, but you know that the other business is in severe financial difficulties, is it worth covering legal costs to instigate a court case if the potential for repayment is very low?

7. Seek legal advice If you haven’t already, now is a time to discuss the matter with an accredited commercial solicitor, assess the risks and rewards, and make clear decisions about the way forward.

Unless the dispute is straightforward, involves a small monetary value, and doesn’t seem to pose any risk of a counterclaim, legal advice is strongly advisable.

8. Evaluate the strength of your claim Most businesses in a conflict feel convinced that they are right, but you need to assess whether you have enough evidence and grounds to make a factual claim.

This process means looking at the legal position of the company and the documentation available. The potential for a counterclaim or even losing the case in court are also crucial factors.

9. Estimate timescales and costs Whichever legal action you take, there will be costs and timescales involved.

Speak with your solicitor to get a firm idea about the likely length of time before you reach an outcome and the total costs to decide whether the conflict is worth pursuing.

10. Make a final decision At this stage, you know how strong your claim is; you have all the evidence and benefit from legal advice about the right options for your business.

Now, you’ll need to decide whether you’re willing to compromise and perhaps accept staged payments, make a partial claim, or whether it’s worth abandoning the claim or pursuing full legal action.


Once your litigation has been finalised, you’ll still need to consider enforcement action, so a court case is often the last resort in a commercial dispute involving substantial amounts.

Expert Advice on Commercial Dispute Resolutions

If you need practical legal support deciding how to proceed with a business dispute or specific advice around commercial law relating to your claim, please get in touch with The Law Firm Group.

We’ll run through the situation, provide guidance, and help you choose the best approaches to successfully reach a favourable outcome, balancing risks versus rewards and costs versus returns.

Call or email us to talk about it. 0300 303 3805

How to Negotiate a Commercial Lease – Common Pitfalls to Avoid

How to Negotiate a Commercial Lease – Common Pitfalls to Avoid

How to Negotiate a Commercial Lease – Common Pitfalls to Avoid

Negotiating a commercial lease for a new trading premise or renegotiating an existing lease may seem quite simple. And on the face of it, it is! You need to agree on the rental costs, duration of the contract, and each party’s obligations.

However, agreeing to blanket terms can leave you without a safety cushion if things go wrong or even mean falling foul of the small print and damaging your relationship with your landlord.

It’s highly advisable never to sign a lease, or any business contract, without carefully assessing the terms, clauses, and conditions.

In this guide, the business specialists at The Law Firm Group advise on some of the typical issues we deal with and how to ensure your commercial lease meets your expectations.

Signing a Commercial Lease Under Pressure

Lack of available space and rising property costs can be a significant challenge, but doing your homework and taking your time to inspect the premise in question is key.

You can uncover a surprising amount of information by visiting a potential rental unit and speaking to other tenants, such as:

    • Problems experienced by other businesses nearby.
    • Checking the square footage, parking availability and loading space.
    • Verifying times when accessibility may be compromised (such as industrial estate opening hours).
    • Looking into the security available or any risks in the area.
    • Inspecting the property’s condition, inside and out, especially in wet weather.

Location matters. Even if you’re finding it tough to rent a property in your desired area, focusing single-mindedly on this factor can mean you spend more than you can afford or perhaps can’t meet the needs of your staff and clients.

Take your time to assess the amenities on offer, and evaluate the maintenance services the landlord is offering – if you’re under pressure to sign a lease quickly or advised that there is competition from other tenants, it may be a red flag.

Understanding the Complexities of Your Business Lease Terms

When you’re satisfied that you have found the ideal premise and that the rental costs are appropriate for your business, it’s time to look closely into all of the associated terms in your rental contract.

Terms include several core pieces of information:

    • How long the lease runs for, and your options for extending the period.
    • Break clauses – if you need to end the contract early, and any penalties or notice periods attached.
    • Rent-free periods, often available at the start of a longer lease term, usually from three to 12 months.
    • Maintenance obligations – the tenant will normally be responsible for much of the general upkeep, so inspecting the property first is essential.
    • Repairs, and whether the landlord is committing to fixing any fundamental issues with the property before you move in.
    • Alteration rights – can you add internal walls or remodel? Do you need written consent to make such adjustments?
    • Is subletting allowed for all or some parts of the property?
    • Service charges – sums payable to Landlord for insurance and maintenance.
    • Future obligations – your obligations to the Landlord after you have assigned the lease.
    • Land registration – leases over 7 years long have to be registered at the land registry.

At this stage, if you haven’t already contacted an experienced solicitor, you should do so before going ahead with the lease agreement.

Most landlords are prepared to negotiate the terms, but you’ll need to understand each provision and then compare that to your expectations to determine which elements require a discussion.

Failing to read the terms thoroughly and any unwillingness to negotiate could be detrimental in the long term.

It’s wise to think about how your trading structure or processes might change in a few years and whether the building will remain fit for purpose in its current condition.

Controlling Commercial Rent Costs

Pricing is undoubtedly one of the most important factors in your commercial lease, but forgetting about ancillary costs or additional charges could be extremely expensive.

While monthly rent and a deposit are typical landlord requirements, there are several other costs that you may need to incorporate into your budget.

Build-Out Costs

Some commercial landlords will offer to build out the space. Usually, that means adding internal partitions, replacing a roller shutter door, or perhaps upgrading the flooring so that the building is ready to move into.

If the landlord is stripping the premise back, they may expect the tenant to contribute to those expenses, so you need to clarify.

Don’t assume that a build-out will be solely the landlord’s responsibility! One option is to negotiate on reconfiguring or redecorating the space in return for a rent-free period, for as many months as it would take to claw back the amount spent.

Commercial Building Taxes

Some business units on long leases may be subject to Stamp Duty – and if you’re signing a contract for over seven years, you will need to register with the Land Registry and pay the appropriate fee.

Other cost considerations include council tax and other levies that might apply to commercial units in the local authority area.

Reinstatement Costs

While it’s common to think about the immediate future when signing a new lease, you should also have one eye on the future.

For example, if you intend to make alterations to the premise and have the landlord’s consent, will they expect you to cover the cost of restoring the property to its former condition when you move out?

It could be very costly if that includes things like reinstating suspended ceilings, removing walls or structural work.

Rising Rental Charges

Finally, make sure you understand whether the rent is due to change and if there is a fixed period built into your lease.

Multi-let buildings with several units are also typically subject to maintenance and insurance contributions towards the upkeep of common areas.

Where possible, these costs should be capped or fixed for the duration so you won’t suddenly be hit with rising costs.

Legal Advice When Negotiating a Commercial Lease

Professional advice is invaluable when you are negotiating a commercial lease – the points we’ve explored above give you a glimpse into the many complications that can arise if you aren’t confident that your lease terms are acceptable.

As your legal representatives, The Law Firm Group apply our years of business experience to comb through the terms of your tenancy agreement, identify clauses of concern, recommend negotiating points, and even liaise directly with your prospective landlord if you wish.

Please get in touch for more advice about the common stumbling blocks in commercial leases – and how to ensure you steer well clear.

Call or email us to talk about it. 0300 303 3805

Benefits of Working With a Solicitor to Set Up a New Business

Benefits of Working With a Solicitor to Set Up a New Business

Benefits of Working With a Solicitor to Set Up a New Business

Launching a new venture can be hugely exciting. But establishing the optimal trading structure, customising contractual terms, and creating a bespoke set of association documents can be time-consuming.

The regulatory framework is complex, so legal advice from day one is the best possible way to ensure you’ve dotted all your I’s and crossed all your T’s.

Today we’ll explains why an early consultation with an experienced solicitor is key to ironing out potential teething problems and how a skilled legal adviser might even improve your initial start-up investment prospects!

Essential Legal Advice When Setting Up a New Company

One of the stressors for new business owners is the myriad of decisions that must be made.

Investigating financing opportunities, analysing legal implications, determining whether offered terms are reasonable, all while looking to establish a customer base and build branding and reputation.

A solicitor specialising in business law does much more than step in when you have a dispute or legal challenge.

We assist clients with:

    • Considering the tax implications of varying business models.
    • Advice on the right time to start your first trading period.
    • Negotiating lending terms for start-up capital investments.

Depending on the nature of your business it may also be necessary to set up contracts for supply or procurement, in which case you’ll need to look at product liabilities, insurance coverage, and finessing your marketing to comply with statutory industry regulations.

Getting it wrong at the early stages can be disastrous even for outstanding business concepts, so we always recommend speaking with a solicitor right from the beginning to ensure your launch runs smoothly.

Advantages of Legal Support When Launching a New Business Venture

There are multiple elements of establishing a new enterprise that involve contracts and agreements, all of which benefit from an astute legal eye to point out issues or recommend amendments.

For example:

    • Building leases
    • Client or supplier contracts
    • Employment offers
    • Shareholder agreements

Any documents that comprise an agreement between two businesses should be fully reviewed and negotiated to identify clauses or terms that conflict with your company objectives.

Partnership agreements or shareholder contracts must outline the financial contributions of each party, ownership proportion, and the anticipated returns.

Getting these agreements spot-on is advantageous to support your position as the company grows, avoid conflict, and secure your status as a new start-up with a solid grounding supported by an experienced legal team.

The Significance of Adequate Insurance

Insurance coverage is necessary to protect your business from multiple risks and potential exposures that could dislodge a fledgling business before it has a chance to gain market share.

With policies ranging from public indemnity, employer’s insurance, product liability, legal indemnity, building coverage and many more besides, selecting insurance without spending over and above your budget can make a big impact.

Our business solicitors offer advice to identify your most significant risks and decide which exposures are worth guarding against, such as:

    • Employee damages or accidents.
    • Protection if a product injures somebody.
    • Safeguarding your assets, premises and visitors.

Most new businesses will look to minimise initial costs, so a legal consultant can recommend the coverage worth investing in and those you can afford to postpone.

Securing Funding for a New Business Proposition

We’ve mentioned investment, and it’s often a space that will make or break a new company on the brink of a launch date.

External financing relies on robust incorporation or partnership documents, whether through a private investor, a bank, crowdfunding, or venture capitalist.

It can be tough to secure investment without legally valid documentation that meets investor expectations, so all the foundational documents must pass inspection.

There are endless reasons why accurate and complete incorporation documents matter, but as a few examples:

    • Venture capitalists will not invest in new businesses without comprehensive corporate records and incorporation documents.
    • Poorly constructed documents prepared from templates can expose founders to losing shares or control over the company.
    • Financial negotiations hinge on the abilities of the business owners to confer and handle requests while fostering positive relationships. Third-party financiers are proficient at making deals to their benefit, so having a legally aware approach can be meaningful for the business’s long-term success.

Here at The Law Firm Group, we never recommend using standard incorporation documents for these reasons.

While it’s possible to download a template at a very low cost or use standardised paperwork available through Companies House, this method can be costly and pose vulnerabilities later down the line.

Guidance to Protect Intellectual Property

Intellectual property (IP) can present a bit of a grey area but covers some of those proprietary designs and product engineering that is unique to your new business idea:

    • Artwork and literary pieces
    • Logos, symbols, names and graphics
    • Fresh inventions
    • Designs

Ensuring you understand how IP ownership works is important, particularly if you commission designers or agencies to create business branding.

Contracts must state your ownership of the IP, or permitted legal usage rights, to avoid the prospect of legal challenges, often when the new business has reached a certain level of success.

It is also crucial to protect IP from the competition, especially for new businesses that have innovative creations and designs, which can be vulnerable to things like copying trading names, replicating a logo, or reverse engineering a product.

Finding Independent Legal Support to Set Up a New Business

As we’ve seen, there are numerous benefits of having professional advice at every stage of setting up a new business – from crafting your trading documents to entering into contractual agreements.

As your commercial solicitors, our role is to identify potential risks, analyse the terms of each contract, and help you make informed decisions about the best ways to proceed.

For more advice about creating a future-proof trading structure or addressing challenges you’ve faced running a start-up company, please get in touch with The Law Firm Group at your convenience for professional, impartial and friendly advice.

Call or email us to talk about it. 0300 303 3805

Company Wrongdoing – Understanding Director’s Responsibilities

Company Wrongdoing – Understanding Director’s Responsibilities

Company Wrongdoing – Understanding Director’s Responsibilities

Whether you’re just launching a new limited company, or have been a director for many years, it is never a bad time to review your obligations and what responsibilities go hand in hand with a registered directorship.

The Law Firm Group works with businesses and private clients, and knows that very often concerns about such responsibilities only arise in challenging times.

If your business has a trademark issue, is facing liquidation, or has a legal problem, directors will need to review their risk exposure and what personal consequences such a situation might have.

However, if you know from the outset what your responsibilities are, you can lead from the front with clear oversight of your liabilities as a director.

Separating Personal Liability from a Limited Company

Incorporated businesses are a separate legal entity from their owners or directors.

That does not mean that, in every case, a director cannot be found personally liable in the event of company wrongdoing.

For example:

  • In tort cases, in a civil court (as opposed to a criminal case), a director might be liable for the same acts as the company.
  • Courts may deem that a director has authorised, or caused an act of wrongdoing to take place.
  • If a director is found to have assisted with an infringement act, such as a breach of trademark rules in a passing off claim, they may be considered personally responsible.

Case law demonstrates that if a director has created an infringement, or assisted in it then if that contribution has been above inconsequential, the court can decide to share the responsibility for making reparations to that director, as well as or instead of the company.

These laws show us why every company director must have an understanding of all critical business activities.

For example, if a company took out a significant amount of borrowing, paid dividends to a director, then entered into administration, a court may find that the director personally benefited from the loan and must contribute towards the losses from their finances.

Therefore, The Law Firm Group would always advise seeking independent, professional advice if you have any concerns, or are keen to understand any potential liabilities and what actions are available to you.

The Responsibilities of a Director in the UK

The key to having a successful, litigation-free directorship is to have a firm grasp of your responsibilities.

Of course, in the real world, most directors can’t have direct oversight of every activity of every department and every employee of their business!

Our legal teams often consult with clients who are asked to sign paperwork regularly, might not have been aware of an area of risk, and therefore feel that they cannot be held personally liable for an instance of wrongdoing.

The reality is that the law will very rarely recognise ignorance as a defence. So outside of exceptional circumstances, it is up to you to know what is happening and manage your business within the scope of your position.

You can refresh your understanding of your responsibilities at any time, but to recap:

  1. Constitution: Every UK limited company needs to have a constitution. Often this is created from the model articles available from Companies House. Within that constitution is the articles of association, that set out the rules for your board. We’d recommend reviewing the articles if you haven’t done so recently, which set out what your powers are
  2. The Success of the Business: The next key responsibility is to promote your company’s success. If you have over 250 employees and are considered a large business, you’ll need to include a report about how you have done so along with your annual statements. That means making decisions for the benefit of the business shareholders, protecting the firm’s reputation, and considering other factors such as the environment.
  3. Sound Judgment: Many of the decisions we all make daily are dependent on our judgement, and as a director, those choices need to be made independently. That means not delegating important decisions to others without the requisite authority, and forming your own view.
  4. zue Diligence: This is a phrase we often hear, but what does it mean? Due diligence is about showing skill and care in the way you work. Some directors might demonstrate this through continued professional development or generally keep aware of market conditions and company performance.
  5. Conflicts of Interest: Being a director has risks and rewards like any role, but it is vital to be objective when it comes to conflicts where a particular contract or job might benefit you personally. Such conflicts need to be disclosed to the board members, and sometimes also to shareholders, and you’ll also need to disclose any significant gifts. Note that you have a statutory duty to declare an interest in any pre-existing or new transactions that the business might undertake.
  6. Record Keeping: A widespread problem, particularly for SMEs, is not keeping records of events such as board meetings or votes. It is imperative that meetings are minuted, and the records kept for ten years. Those records protect you in the event of any wrongdoing being found, and evidence what decisions were made, by whom, and on what basis.

How Can I Ensure I Am Fulfilling my Fiduciary Duties as a Director?

Your role as a director is to manage the company on behalf of the shareholders, and you may well own shares as well as running the show!

The Companies Act 2006 outlines all the responsibilities we have explored above and is a useful reference if you are facing a problem and need to know where you stand.

If you have fulfilled all your responsibilities within the powers set out in the constitution, and have used appropriate skill, care and diligence in your work, it is unlikely that you could be held personally liable should the business have been found to be in breach of a contract or law.

It is difficult to give a broad overview of how you avoid any personal liability. Still, in most cases, this could only arise where it can be proven that you have breached your fiduciary duties to look after the shareholders’ interests.

For example, suppose you knew a business was insolvent and allowed it to continue trading, or didn’t disclose a conflict of interest before accepting a substantial business contract. In that case, this could be a more serious issue.

Should you require assistance in understanding any aspect of your director’s responsibilities, be facing a challenge related to company wrongdoing, or feel that you would benefit from professional advice from a highly experienced legal team, do get in touch!

The Law Firm Group has offices across England and are always on hand to provide sound legal advice to help you decide on the best courses of action.

Call or email us to talk about it. 0300 303 3805

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