areas we work in
establishment of business
When starting up a business, apart of course from the lease, many legal issues arise. These include:
- the need to comply with planning requirements;
- business structures – we will normally advise a client as to the type of structure which might best suit them. Options include a sole trader, partnership, company and either unit trust or discretionary trust. Each will have different implications in terms of asset protection and taxation. In this regard we will normally discuss the possibilities with your accountant.
- asset protection generally – see separate heading below in connection with this;
- the preparation of a Contract or Agreement between the client and customers. Again here there is an emphasis on the minimisation of potential liability to customers;
- compliance with statutory requirements, such as relating to needed licences or permits;
- entering into a lease. (See below.)
Purchase of Business
The purchase of a business involves the application of many branches of the law and is full of traps for the unwary. Relevant areas of law include contract law, employment law, the law relating to leases, the law of guarantees and indemnities and, potentially, consumer laws such as those relating to misleading or deceptive conduct.
Prior to entering into any business purchase contract, it is critical that legal advice be obtained in relation to the content of the contract, the attached lease and lease disclosure statement, planning laws and various legal and practical aspects of the business and business premises. The position as regards employees must be understood – it often being overlooked that, at law, from the perspective of the employee, there is automatic transmission to the purchaser and all employee entitlements continue as against the new owner. Another focus is ensuring that if necessary the contract is subject to finance and that comprehensive indemnities and restraints are obtained from the vendor.
Almost always the terms of the contract are subject to negotiations conducted between the solicitors for the two parties. Once the contract is entered into, a lawyer guides the client through to settlement, with a key issue over that time being the consent of the landlord to the transfer of the lease to the purchaser.
We act in relation to a range of business purchases, including mixed businesses, cafés/restaurants service industries, and have a particular focus on the acquisition of motel businesses.
Again in this area it is essential for the lawyer to liaise with your accountant as regards taxation aspects. These include the nature of your purchasing entity, the split up of the price between goodwill and plant and equipment and checking that, before the contract is signed, the accountant has thoroughly scrutinised the accounts of the business.
Sale of Business
Once the contract is signed and any finance approved, the formal consent of the landlord is sought to the transfer of lease to the purchaser.
Another function of the solicitor for the vendor is to ensure that all PPSR’s (security registrations on the Personal Property Security Register) are discharged.
Over the last year or so there has been a lot of publicity about the ruthless behaviour of certain franchisors, often resulting in franchisees who have injected their life savings into the business losing everything.
Before becoming a franchisee it is critical to obtain legal advice as to the content of the franchise agreement and relevant disclosure documents.
Franchise agreements are notorious for being drafted in such a way as to be heavily biased in favour of the franchisor. It is essential that you understand the nature and effect of the proposed arrangement, and the risks arising from the proposed documentation.
What do you do if a clause or clauses seriously put you at risk? Sometimes a franchisor will be prepared to make amendments for you. Sometimes they will not, but at least you will be aware of the risks you are undertaking and perhaps can take precautions in certain circumstances. Another strategy which can be adopted is to email the franchisor or their representative to obtain assurances as to how they might approach particular situations.
We will typically spend an hour or so perusing a franchise agreement with the client. If required, we can confirm our detail advice by email and engage in negotiations with the franchisor.
Licences, Contracts and Agreements Generally
We regularly prepare documents for business clients in a broad range of situations, including with respect to engagement of contractors (we act for both contractors, and principals), and intellectual property Agreements such as appointments of agents or distributors. Sometimes these will be bespoke documents, prepared from scratch for a particular situation. More often we start with a precedent, from our large bank of precedents, both created personally and obtained through professional services.
Particular Agreements which tend to come across our desk are:
- Partnership Agreements – between individuals, trusts or companies;
- Directors/Shareholders Agreements – these set out a range of agreed factors and processes relating to the conduct by the company of the business. Important inclusions are exit provisions, drawings policies; and the specification of a range of decisions on which agreement must be unanimous. Such agreements can be critical for the protection of a minority equity holder;
- Buy/sell Agreements – these are a very useful device, which in practice are not utilised nearly as often as they should be. They are used between business proprietors, to avoid a disaster when one either dies or becomes totally and permanently disabled. Typically each party will self-insure to the extent of their value in the business. The Agreement provides that, if one dies or becomes totally and permanently disabled, two things happen. First, they or their estate retain all amounts payable under the policy. Second, the other partner/s receive the share in the business of the deceased or disabled partner, without having to pay anything for it. This ensures that a dying or disabled equity holder receives their money without having to fight, even sue for it. It also avoids financial stress on the remaining partner or partners;
- Employment Agreements – these are typically prepared on the instructions of the employer. At the same time as preparing these, advice is provided on a number of points, including as to relevant laws and probation periods. We also advise employees as to the content of proposed employment agreements prepared by their prospective employer.