Have Legal Gaps In Your Business? 8 Tips To Avoid Legal Risks

As a small business owner, there’s a lot to take care of – bills, taxes, inventory and most importantly, business legals. But what if we told you that taking care of your legal needs is one of the most crucial aspects of your business? 

Not taking care of your business legals can set business owners up for legal risks. Take 7-11 as an example where the company had to pay $173 million to workers after some franchisees falsified records in underpayments for their employees. 

Why did this happen? It’s because these business owners were not aware of the legal gaps in their business. But other than the monetary damages a business owner can face, consider the reputational damage that comes with not complying with your legal requirements. 

The ramification of not being compliant is just too significant to ignore, so we’ve highlighted the common legal gaps businesses face and some helpful tips to stay compliant. 

Read along!

Common legal gaps 

Recently more than 2000 businesses completed our Legal Health Check (LHC), and it’s safe to say that the results were astonishing! We’ve collated the information just for you so you can discover the most common legal gaps businesses face.

1. Lack of employee contracts

Based on the Legal Health Check, a whopping 40% lack employment contracts. To put that into perspective, four out of every ten businesses don’t have a full-time, part-time or casual employment contract for their staff.  

Among the 40% without employment contracts, 91% operate a partnership. Now, why is not having employment contracts an issue? An employment contract is more than just a piece of paper with words. It provides:

• A formal record of both parties’ expectations 
• Commencement dates 
• Negotiations 
• Award coverage
• Pay and notice periods

If you don’t want the Fair Work Commission knocking on your door and handing you a hefty penalty, as high as $1000 for not complying with the National Employment Standards, when something goes wrong, get an employment contract in place for all your employees.

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2. No workplace policies in place 

Workplace policies are essential, no matter what type of business or workplace you run. Workplace policies:

• Make employees feel safe, comfortable and supported 
• As a business owner, you can’t be everywhere at once – This is where your policies play an integral role in setting out clear action plans regarding how employees manage situations 
• Provides employees with knowledge about what is expected of them 
• Ensures that you’re better equipped to defend claims of a breach of employer obligations, e.g. The Work Health and Safety Act 2011 (NSW)

Although the benefits of workplace policies are evident, a staggering 77.5% of businesses who took the LHC said they don’t have workplace policies (including drug, alcohol or social media policies). Of the 75.5%, 73% of them are companies.

3. Online terms and conditions

It is equally concerning that many small businesses lack legal protection for their online activities. According to the LHC findings, 63% of businesses conduct their business online. 

There’s no doubt that the internet has opened a door of opportunities for many business owners operating online. However, what is unfortunate is that 22% of these online businesses do not have website terms and conditions.

While website terms of use are not a legal requirement, just imagine if someone copied all the information & photos you provide on your website. This is where the website terms of use can save you thousands of dollars and time through copyright infringement.

4. Privacy policy 

While website terms of use aren’t a legal requirement, a privacy policy is. Did you know that 19% of businesses, according to the LHC, do not have a privacy policy?

Every business website needs a privacy policy for the following reasons.

• The privacy policy demonstrates the nature of the personal data you’re collecting from people who visit your website
• Customers need to be able to access your privacy policy freely
• You’ll be abiding with the Australian Privacy Principles as outlined by the Privacy Act 1988
• People are very conscious about what’s happening with their information – what you are collecting, who it is being shared with, how it’s being collected

A robust privacy policy will minimise the possibility of getting sued. Let’s take Snap Chat, for example, which has faced massive lawsuits over the past few years because of its questionable privacy policies. Don’t be Snap Chat. Cover your legal obligations nice and early.

5. Intellectual property needs to be considered

Many people automatically assume that their Intellectual Property (IP) is covered. The reality is that it isn’t covered. You should be protecting all the effort and time that goes into creating your business and the information that employees bring into your business.

IP holds a lot of value in today’s society, and it’s for a very valid reason too. Without proper IP protection, you won’t be able to reap the full benefits of your business’s inventions, endless ways to foster innovation and less room for research and development. 

Let’s go through an example; say you have a contractor or employee build you an app or a business website or write content for your site. A contract spelling out who owns the finished product once paid for is vital. 

Why? If you have someone looking to invest in your business, this is one of the things they’ll likely look at when assessing the value of the business. They may even walk away if you don’t have clearly documented ownership of your IP. I’m sure you wouldn’t want this happening like many other business owners.

6. How well do you know the requirements for your business structure?

While you may know what type of business structure you’re operating, the structure you operate will have different legal and tax requirements. It’s not all the same, unfortunately, but many business owners aren’t aware of the differences. For example

• If you operate a company, you are seen as a separate legal entity – This protects you from personal liability if something goes wrong
• A sole proprietorship, on the other hand, will be personally liable for risks – Your personal assets can be used to pay your business debts
• From a tax perspective, sole traders must pay tax at a personal income tax rate. Whereas if you operate a company, it’s a flat rate of 30%

These minor differences can confuse business owners and ultimately lead to legal issues down the road. But this is where Lawpath’s platform can save time and money while ensuring compliance.

How do you identify potential legal risks? 

As you’ve seen through the results of the LHC, legal risks can integrate their way into almost every part of your business. These legal risks can cause financial as well as the reputational loss for your business. 

To avoid this from happening, here are a few optimal ways to identify the potential legal risks in your business so you can implement the best ways to prevent them from occurring. 

1. Business commitment from employees 

Minimising legal risks often starts at the centre of your business – management. Management and leaders in your business, whether you or another appointed person, need to regularly update employees on business strategies to identify legal risks. 

Communicating your business’s strategies to employees is important because employees are the heart of any business. If it’s not possible to outline the strategy through regular meetings, it can be done by having a workplace policy in place, which 77.5% of businesses currently don’t have.

2. Identifying legal risks

Risk identification involved an issue-spotting exercise. While it sounds complicated, its implementation is quite simple. Here are three steps to undertake:

Step 1: Legal risk sources

The first step involves identifying the primary sources of legal risks. You can look at areas such as:

• Employment contracts and agreements
• Legislation and regulation
• Structural changes within the business 
• Hazards – Physical injuries within the workplace

Step 2: Recognising potential risks and implementing a plan

Once you have completed the first step and identified the sources of legal risk, the next step will be to implement a plan to combat the risks. This can include:

• Catching up with employees regularly to discuss risks identified in the workplace
• Managing the legal risk directly, e.g. If there is a physical hazard such as a water spill, clean it up directly 
• Have a system in place where employees can send risks to management

Step 3: Record risks in a risk register

A risk register is a database that captures all the risks that have occurred in your business. The purpose of having a risk register is to ensure that if a similar risk occurs in the future, it can be dealt with quickly and efficiently. 

The risk register can include the following headlines:

• Name of the risk
• The danger of the risk through a rating scale
• The consequences of a risk on a rating scale
• Steps taken to manage risk 
• The outcome of the risk

3. Legal Health Check (LHC)

Another fast and effective way to capture your business’s legal risks and gaps is through our Legal Health Check. The Legal Health Check is an award-winning tool that will help you identify the legal gaps in your business so you can make it a priority. 

By answering a few questions focused on legal areas such as employment agreements, intellectual property, business policies and other key legal areas, you will 

• Receive a personalised report that will help you determine the legal gaps you need to cover
• A genuine assessment of your legal compliance 
• Benchmark findings that will help you ascertain the next steps to take
• An opportunity to chat with an on-class business consultant for free
• Access to 2 missing legal documents for free

The best part is that the Legal Health Check is a free tool that any business owner can access. Uncover your legal gaps and set your business up for success today.

Tips to Stay Compliant 

Whether you’re operating a brick and mortar business, selling from your home garage or selling products online, one thing in common for all business owners is the importance of staying legally compliant at all times. While it can seem like an arduous task, it doesn’t have to be if you follow these eight tips. 

Tip 1# Getting it right from the start

If you’ve recently established your business, this is the best time to set up the proper compliance and legality requirements in your business. 

Legal documents and policies in place from the beginning create a culture that highlights the importance of staying legally compliant. The start of your business is the best time to introduce

• Employment agreement
• Workplace policies 
• Website terms and conditions – If you have a business website

Even if you’re well into your business journey, it’s never too late to add these documents in place.

Tip 2# Analysing and evaluating legal risks that have already occurred in your business

Identifying legal risks that occur in your business is one thing. However, analysing and evaluating the legal risks once they’ve occurred is an essential tip that most business owners forget about.

The purpose of analysing and evaluating the legal risks that have already occurred is to gauge the effectiveness of the steps your business took to minimise the consequences of the legal risk. 

Questions that you could ask yourself to evaluate the risk effectively include asking:

• Where did the risk come from
• What strategies could’ve been in place to avoid the legal risk
• Is everyone in the company aware of the legal risks 
• Have we removed the legal risk so it doesn’t occur again
• Share the results with the wider team

Tip 3# Staying informed 

Small businesses can stay legally compliant if they stay informed of regular legislative changes and updates. 

We know it’s hard to keep track of the legal updates with all the other important matters in your business, but if you sign up for Lawpath’s newsletter, we can provide you with regular legislative changes and other important legal matters, so you’re always on top of your business game. 

Sign up for our newsletter and be the first to find hand-picked articles on topics that we believe are crucial to successfully scale your unique small business.

Tip 4# Choosing a good partner and hiring the right employees 

As we’ve discovered that 91% of those operating a partnership do not have contracts in place in their business, it makes you wonder whether this partnership has anything to do with this factor. 

Just like you need good employees, you need a good partner aligned with your business and legal goals. It’s essential to have a good partner and the right employees to stay compliant because: 

• Shared responsibility – If you’re under the pump and you don’t have the time to check the legal gaps in your business, you can rely on your partner and your employees to ensure it’s always up to date 
• Having a great team means that if any legal risks do arise, you can count on them to report these risks and manage them effectively

Tip 5# Keep an open mind

With things constantly changing in today’s business and legal environment, there is truly no one way of doing things. This is why you and your business must remain fluid. 

Adjusting and pivoting accordingly, especially when new legislative changes are introduced, while staying true to the essence of your business will be the key to success. 

Tip 6# Remembering ongoing internal requirements

New legal changes will apply to you whether you’re a corporation or a small business owner. This is why it’s so important to have ongoing meetings or procedures in place to be aware of common legal changes to look out for. Some regular changes include, but are not limited to include:

• Changes to tax
• Employee award rates 
• License, permits and certificate renewals in your relevant state

Tip 7# Changes to your business structure

Suppose you’re at a point in your business journey when you’re ready to go from operating as a sole trader to being a registered company. In that case, there are specific legal requirements to be aware of to stay compliant. Here are some key things to keep in mind when changing your business to a corporate structure:

1. A new ABN is required 

When setting up a new business structure, such as an incorporated entity from a sole trader, the sole trader ABN will need to be cancelled. You will then need to apply for a new Australian Business Number to use in conjunction with your ACN for your company.

2. Before you cancel your old ABN, ensure all business obligations have been fulfilled

Ensure you have no debt owing and have met all your obligations. Multiple business activities can be carried out under a single ABN if they correspond to the same business structure.

3. You cannot transfer an existing ABN to another entity

ABNs can’t carry over between business structures. A new entity will need a new name, meaning there will be no use for the ABN you have been under as a sole trader.

4. Create a Constitution

If you are going to be the sole director and sole member (shareholder), you do not need to have formal rules. However, if there is an additional director or more than one member, your business must be regulated by either the replaceable rules in the Corporations Act or by a Constitution.

Tip 8# Use a legal compliance checklist

You can keep on top of things by implementing a compliance checklist to ensure your business stays compliant year after year. We have created a checklist that discusses seven ways to get your business legally ready. You can use this checklist at the start of every business year or even quarterly to cover legal areas such as:

1. Review all contracts
2. Review intellectual property licenses
3. Ensure you’re operating within government regulations (covid rules)
4. Consider your company’s finances.
5. Review and update workplace policies
6. Consider staff requirements
7. Conduct audits

Conclusion

Staying on top of your legal is challenging – with so many other elements in your business that need attention, it’s easy to forget about the legal gaps requirements. The good news? 

We’ve outlined the most common legal gaps businesses face and eight awesome tips for staying legally compliant. Here is a summary of the top tips:

1. Getting it right from the start
2. Analysing and evaluating legal risks that have already occurred in your business
3. Staying informed 
4. Choosing a good partner and hiring the right employees 
5. Keep an open mind
6. Remembering ongoing internal requirements
7. Changes to your business structure
8. Use a legal compliance checklist

We hope the tips will guide you. However, if you don’t know where to start or how to best identify the legal gaps in your business, try our Legal Health Check. The Legal Health Check will provide you with a genuine assessment of your business’s legal gaps.