commercial contracts

Ebola Clauses – where do you stand?

As Ebola continues to spread, over 13,000 people have now contracted the deadly disease.

Major airports are operating Ebola screenings for arrivals from Liberia, Sierra Leone and Guinea, but as of yet no shipping ports have followed suit.

The International Maritime Organisation has ordered that all ports are to remain open to allow trading to continue.

This however, is causing uncertainty within the shipping industry especially since deaths in West Africa have totalled 5,000.

Oil, cocoa and minerals are regularly exported from the region and the spread of Ebola is causing legal and financial stress for those companies who work there.

Shipping companies are now adapting their contracts to ensure that they are protected if their vessels are required to dock at affected areas – known as the Ebola Clause.

The Ebola Clause requires that companies chartering the shipping liners must provide protective clothing, pay all medical expenses, find alternative ports if there is a risk of coming into an affected area, and cover financial loss if deliveries are delayed.

By keeping contracts updated this will ensure the safety of workforces and profits – a task that should be adopted by every business.

Contracts should be reviewed and updated for a variety of different reasons such as:

 

  1. To manage finances and avoid falling into difficulty

The Ebola clause is covering any financial difficulties that the shipping industry could fall in to if Ebola affects them. By reviewing your contracts you will be able to adapt or add clauses to contracts that will protect your business as the world evolves.

  1. To ensure the business is in line with all legal requirements

Laws are constantly adapting and changing, especially UK consumer laws; at the moment major reforms are under way with the Consumer Rights Bill due to come into force next year. All businesses must adhere in order to be successful and it may be that your contracts do not reflect the most up to date regulations.

  1. To ensure business relationships are sustained in a way that both parties are aware of their role

By reviewing contracts a business can set out clearly how they expect the relationships to work and cut ties with a relationship that is not beneficial. By doing this a business can be more cost effective.

  1. To protect the business reputation

A review can also help your business reputation. By having a solid contract that is accessible a business can avoid costly disputes, which could damage the brand.

Whether it is Ebola or another uncertainty that may affect your business, you should ensure that you have made sufficient efforts to protect your business.

Contractor and IR35 myths debunked

As you head to work on a Monday morning do you ever stop to think how many of these people rushing past actually work for themselves?  Recent ONS figures show that over 730,000 people are self-employed, the highest figures since records began 40 years ago.

Since the economic crash in 2008 people have jumped at the chance of self-employment – which brings freedom. You can be your own boss and reap the rewards of your own hard work. And as you grow it gives you the opportunity to take on more people to help build your business.

With 47% of university graduates forced to take non-graduate jobs, freelancing or self-employment is becoming a popular option for those fresh out of university.

Those in the technology and media industries have a wealth of opportunities to become freelancers and will be part of a strong business group that continues to grow steadily.

It is now common practice for businesses to hire a freelancer, or contractor as they can be known. Not only can they be more cost effective but they also have a wealth of knowledge and experience which can be extremely attractive to an expanding business.

A report by the Recruitment and Employment Confederation revealed that the majority of UK employers plan to hire more contractors, for both short-term and long-term job contracts.

Despite contractors receiving no sick pay, holidays or pensions, many consider freelancing a lucrative option as they can demand a higher rate of pay.

However, a recent number of cases has flagged up the need for freelancers to differentiate and protect themselves, not only to manage the liability within the business but to clearly define the relationship between both parties regard HMRC IR35 regulations.

In 2009 Dragonfly Consultancy Ltd lost their case against HMRC and were ordered to pay £99,000 in backdated taxes. John Bessell was contracted by AA to become a systems tester between 2002 and 2003 but after a judge deemed that clauses in his contractor agreement were added to get round IR35, he was forced to pay.

Essentially the aim of the IR35 legislation is to ensure that individuals are working as a contractor rather than an employee in order to reduce their tax liability and National Insurance contributions.

If you are caught then you can face paying years of backdated tax, obviously not a good option for a university graduate with student loans.

Issue like who owns the client and client contact, payment terms and the issue of the ownership of intellectual property are key in a contractor agreement.  A diligent approach to contractor management will help the company manage the risk of hiring a freelancer or contractor and allow both parties to benefit from the agreement.

From a HMRC perspective it’s critical that both parties differentiate themselves by catering for the IR35 issue within the contract.

 

Common contractor myths debunked

                                                                                                    

  1. I don’t get holiday or sick pay so I am not an employee.

Whilst getting these benefits obviously points towards being an employee, it isn’t enough proof, in terms of IR35, that you are not an employee. IR35 regulation requires further differentiation apart from sick and holiday pay.

  1. In terms of IR35, the regulation applies when I have been working as a contractor with the same company for 2 years.

IR35 depends on how and who you work with on a contractual basis. The day to day client engagement and the shape of that relationship is much more important that how long you have been working in one place. The perception may be that the longer you work somewhere the more likely you are to be deemed as an employee, and HMRC may use this information when assessing your employee status.  Again, the risk of this issue can be managed in a contractor’s agreement.

 

  1. I have other clients so I am definitely following IR35 regulations.

It is important to remember that IR35 applies to each individual commercial contract. Having more than one client helps to show that you are on the right side of IR35 however there is other criteria to demonstrate IR35 compliance. The majority of this criteria is echoed in the contractors’ agreements.

 

 

Shareholders’ agreements: protection from loss or unnecessary expense?

28th  Oct 2013

Setting up a new business can be a costly endeavour. Between the new website, marketing and the expense of looking for new customers, many businesses do not consider risk management as a priority from the outset. The introduction of a contract such as a shareholders’ agreement is often put on the back burner and the function and profitability of the business become the main priority. The forming of such agreements can be seen as time consuming and costly but actually this business expense can save the company money in the long run and can creates a foundation and ultimately an incentive for all shareholders and directors to work together.

A shareholders’ agreement is put in place not only to resolve shareholder issues, but to resolve them quickly and quietly, keeping the business’ reputation and income intact. It can govern the actions of each shareholder and consequently the directors of a company, as the people who form small businesses tend to occupy both roles. It is a valuable mechanism in situations of shareholder disagreements or removals. It may prevent an ex-director providing the same services while attempting to poach the previous company’s customers. This would essentially save the company from spending both time and money on unnecessary court proceedings. A further attractive characteristic of a shareholders’ agreement is that it is not in the public domain. Therefore, any boardroom disagreement can be kept quiet to preserve the company’s reputation.

An article from the Independent newspaper, explains the benefit of using a shareholders’ agreement and how the alternative involving court action is much more expensive than putting a shareholders’ agreement in place, “In any event court action is usually expensive and time consuming and may damage the company’s reputation and the goodwill of the business. It is therefore important that there is a contractual procedure in place to resolve any deadlock as quickly and as privately as possible.”

It makes sense putting a shareholders’ agreement in place from the beginning to cater for changes in the shareholders’ interest and business direction. Consequently, the implementation of such a contract would be much trickier after the shareholder changes focus.  Resolutions to such situations are more time consuming and generally uncomfortable as the negotiations take place under a cloud of changing priority and frustration.

The article continues, “the directors and shareholders’ personal plans and expectations may diverge over time, making it harder to agree the terms of the shareholders’ agreement later on in the lifecycle of the company.”  So, putting a shareholders’ agreement in place may also result in a business being more profitable. The agreement can also regulate the everyday functions of the business, allowing decisions to be made quickly and fairly, taking account of the views of each shareholder. It can also regulate the responsibilities and remuneration of each shareholder, which could potentially prevent many misunderstandings and disagreements.

David Reilly, Director at Create Ts and Cs commented, “We believe a shareholder agreement is not only a mechanism for solving problems within a limited company and promoting the sustainability of the company but it’s also a way of managing governance in the business; reflecting the particular culture of the business.  Managing the consent issues and the shared responsibilities of each shareholder/director (in most small businesses the directors and shareholders are the same person); this way responsibility is allocated and incentive built into the agreement to ensure that each director/shareholder (small business model) is part of something that is theirs’ to grow as a team.  This is best done through a tailored agreement, which is a shareholder agreement that is first discussed with the shareholders/directors and the key issues agreed beforehand and then reflected in a tailored contract.”

Yes, it is a relatively costly instrument and is not always utilised. However, this does not take away from the fact that these agreements are an essential tool for your business. It should be common practice for these agreements are formed at the start of the venture alongside forming a company.

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1 in 4 websites break the law.

16th Sept 2013

The BBC website reported that Trading Standards in Scotland (SCOTSS) states that one in four websites are not offering consumers the correct options when trading online, ultimately breaching their consumer rights.  Amongst these infringements include 43% of websites fail to inform consumers of their right to cancel and more than 50% of sites, fail to provide a full refund when required.

SCOTSS chairman Colin Baxter said: “We are concerned about the high levels of non-compliance. It’s a legal requirement to protect online buyers, to ensure fairness and a level playing field for reputable retailers, and to ensure the smooth working of the internet marketplace. “However, with the continuing expansion of e-commerce in the UK, new entrants are joining the market every day, many of them small micro-businesses with little experience of consumer law.”

So, businesses that enter the online marketplace with no knowledge of consumer rights, will only attract unwanted attention from institutions like the standards agency.  This could result in a fine for the online business and bad press for online retailing which is a key part of our economic recovery.

With the public more savvy about their rights as a consumer, it’s up to the online business to ensure their website and online offering is reputable.  This includes being aware of the responsibilities as an online trader and ensuring the correct procedures are in place before trading online.

David Reilly from Create Ts and Cs, director who draft and provide bespoke terms and conditions to online businesses commented “it’s a good idea to keep trading standards off your back; such organisations have the power to fine and tarnish the reputation of the business, leading to a loss of online sales.  It’s a risk for a business not to follow the law and not to communicate the correct legal rights to their online customers.   So why take that chance? A company that is serious about customer service and building a sustainable online business will take the right steps to ensure their customers are protected”.

Online inspection of Websites

SCOTSS will in the future conduct random online inspections of websites, this will include SCOTSS officers carrying out “test purchases” to check how a consumer would be treated when they purchase from the site.  This test will also include cancelling the service within the statutory seven-day period to test whether the website operators are following through on distancing trading obligations, as per the law.

There is a trust that exists between the general public and the online trading community, when an online purchase is made, online transactions lack the traditional personable retail face to face contact that can reassure a potential customer and establish the credibility of the company.  In the virtual world, all that’s visible is the website, social media communications and the correct terms and conditions outlining the customer’s rights meaning this formal communication is not only a legal requirement but demonstrates the correct customer service approach to protecting your potential customers.

Valuation of company shares; common reasons.

 29th April 2013

The activity of company share valuation is  part of the natural lifecycle of a business.  At certain times of change the facility to change company directors may be paramount to the survival of the business.  In such situations the business requires both contract advice and financial expertise.  Here is an example of two common situations

Removal of a Company Director

It’s a tense time within the business when there is deadlock in the boardroom or a fall-out between company directors, sometimes resulting in the removal of a company director .  These are usually highly emotional situations.  If a correct shareholder agreement is in place, then a mechanism is there to cater for solving director dispute.  Without this commercial agreement the director dispute or deadlock relies on the interpretation of the law or an informal approach leading to dispute which can leave a trail of problems and further cost down the line.

When a director decides to part company; the next step requires valuation of the company shares; when it comes to valuing the shares, Philip Simpson of 525 Accountancy comments, “Valuing shares is a fundamental part of assisting the smooth departure of a director; if handled incorrectly conflict can arise leading to substantial legal fees and it may be some time before the business returns to its current state”.

David Reilly director at Create Ts and Cs comments” it’s best to have a commercial agreement in place to deal with the natural ups and downs of business.   Things can go wrong and change naturally occurs in companies, so it’s best to put a contract in place at the beginning, when the sun is shining; having a facility to deal with future issues is simply best business practice”.

Due Diligence – selling a business or appoining a new Director

So the business has reached a certain point where it’s time to sell or attract investment.  Although each event is very different, they are both stressful and exciting times for managing director. According to a recent Financial Times article on March 7, 2013, commenting on the advantages of having a board in place, “the board is as good a way of having checks and balances in a business. It’s not a panacea in all cases, but is there a better way of attracting investment?  The providers of capital will want to keep a check on what management’s doing. So there needs to be some sort of mechanism to provide reassurance that capital is being put to good use”. A board can provide assurance to investors, however the board requires a contract to ensure a structure is in place to deal with future issues and support sustainability.

David Reilly comments, “it’s always an interesting time for the company directors, as a potential new company director or investor assesses the value of the business and conducts due diligence, a tailored commercial agreement puts a framework in place and gives the board options when circumstances change.  The most important issue is the business is sustainable”.

Philip Simpson adds, “An independent valuation of the finances is critical, to getting all parties to agree a figure as quickly as possible so the existing directors can move forward with the business. So, why not pay a reasonable sum and have the peace of mind that there will be no problems in the future and all the relevant diligence has been completed”.

In conclusion having both the financially and contractual expertise in place will support the various natural transitions a company will go through.  The right contract will provide options for change and support those changes.  Having the expertise will guide the business through the various challenges and will help the business to be sustainable.

End

 

 

Self-drafted and ‘off the shelf’ contracts versus bespoke contracts – what’s the difference?

 

Self-drafted or general off the shelf contracts are not adequate for those businesses who want to manage their liability, a case from www.lexology.com (legal website that explores business issues and law) shows how self-drafted or off the shelf contracts just don’t manage the risk within a business and can lead to businesses issuing contracts that are simply unenforceable.

The High court found that an exclusion clause contained within the standard terms and conditions of an IT supplier was unenforceable leading to an award of damages of £110k in favour of the Client. The case (Kingsway hall hotel limited V red sky IT limit [2010] EWHC 965 (TCC). Legal firm RPC (www.rpc.co.uk) commented on this case saying, “from this case it was clear that there existed a clear disconnect between red sky’s standard terms and conditions and the manner in which red sky sought to sell their software.  Suppliers should ensure that their standard terms accurately reflect the sales and contract process. Any gap between the process envisaged in the standard terms and the actual process may result in clauses being unenforceable.  Standard terms and contract processes should be reviewed regularly with legal advisers to ensure enforceability and maximise their benefit”.

Click here to view or Bespoke contract versus self-drafted or off the shelf contract chart outlining the pro’s and cons.

 

Please sign here ….however please don’t ask me what’s in the contract.

 

It’s not uncommon for a client to sign a contract where the content is not understood, the origin of the information unknown or is drafted by an unqualified hand?  There are a variety of reasons for this; one of the key reasons is that legal services appear to be an expensive luxury rather than a must-have for your business.  Generally, this type of contract is unenforceable and this can cause a problem for both parties when a dispute arises.

The danger of contracting with an unenforceable contract is expressed in an article posted on Lexology, “Am I being unreasonable”? by legal firm Nabarro LLP, the article comments on the importance of a contract containing clauses that are reasonable and in-line with the Unfair Contract Terms Act 1977 (UCTA), “it is always been in a contracting party’s interests to consider the reasonableness of the contract clauses; take advice on whether the court would be likely to uphold the clause should it be subject to challenge”.   So knowing what’s enforceable and what’s reasonable defines the credibility of the contract.

Its key to remember that this is not just a legal issue but is a business issue, a think tank aimed at creatives/designers called Creative Latitude believe that the contents of the contract is a key client communication, “If we have to take a deep breath and are physically uncomfortable when we present the contract, that uneasiness is bound to be communicated to our client. The last thing you want to do is cause your client to see the worried look on your face and wonder, what the heck is in this contract”?

David Reilly, director at Create Ts and Cs commented, “Our client acquire bespoke contracts ratified by a solicitor so they know that the contract is enforceable (deemed reasonably).  It’s critical that their potential customer knows they have gone to the trouble to invest in a contract that is enforceable and protects both parties”.

Considering the investment of time and money to contact clients, coffees and lunches, sales systems and marketing campaigns, it makes sense to continue the good work and invest in a professionally written, assessable contract relevant to your business ensuring its ‘reasonable’ and ‘enforceable’ throughout. 

 

The correct contracts attracts investment; get the due diligence right.

 

 

Making your business an attractive proposition for an investor or potential buyer can be a time consuming task.  Apart from the usual business day to day of ensuring you are making sales and keeping your clients happy while increasing profitability; there is the added preparation of documentation to allow the key business info to be viewed from the outside and understood by a potential suitor.  The process of viewing and interrogating this documentation is generally classed as ‘due diligence’.

According to sellingbusiness.ca, “despite all the uncertainty regarding the due diligence process; some principles that if applied can assist the process and increase the chances of reaching a satisfactory sale.  For example it’s advisable that the sellers prepare a large portion of the documentation needed for due diligence before putting the business up for sale, especially financial and accounting information and legal documentation”.  This principle is applied to either investing-in or buying a company”.

Colin Munro, Director at Mi City, www.mi.uk.com comments on the need to impress an investor, “Small businesses need to protect their intangible assets in order to build value and if investment is to be attracted at any future date then clear legal definitions will be a requirement of the investor.  It is much better to agree terms with a supplier prior to commissioning any work, clarifying any areas of ambiguity. This will help to prevent future disagreements and potentially costly negotiations”.  

So, having the right contracts is important as it shows investors or buyers you can protect your asset and build value within the business.  David Reilly, Director at Create Ts and Cs, “in my experience investors or potential buyers will feel a certain reassurance that you have gone to the trouble of putting in place the correct contracts with suppliers and customers to assist in managing risk and help contract in a manner that assists the process of getting paid on time, protecting your IP and generally providing a professional framework to protect both parties while doing business.  Also a contract can demonstrate residual value where contract duration is signed up to; for example, a signed contract ensures a certain amount of revenue and value for the contract period.  i.e. a 12 contract should yield 12 months revenue, which of course is attractive to a potential investor or buyer”.

It’s not unreasonable for a potential investor or buyer to be interested in a company that has invested in its own business processes and formally manages their client relationships. 

Bill Christie, FCIBS is a Chartered Banker and Managing Director at CER, www.cerbusinessfinance.co.uk, who assists businesses identify the appropriate funding for their company commented “I cannot stress strongly enough the essential requirement for a business, no matter how small; start-up or indeed established to have an “approved” set of Ts & Cs; specifically designed for your business.  Yes, you can obtain Ts & Cs from the Internet but they may well not be designed to provide the right protection that you and your business require.  When discussing a funding/business proposal with a prospective client, I consider that Ts & Cs are just as important as Business Insurance”.

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What our software developer clients are saying

We recently drafted a bespoke set of terms and conditions for PHP Developers, Malt Blue Ltd and they’ve been kind enough to blog about the difference and added value bespoke Ts & Cs have made to their business.

Now maybe it’s just a matter of perception in my own mind here; maybe it is. But ever since going through this process, the tone and quality of the interactions with clients has definitely gone up a number of notches. I see myself taken more seriously and remunerated as such.

But maybe it’s something else. Maybe, it was just coincidental timing – I don’t believe that. Irrespective of what it is, I know two things:

  1. I’ve had a good solid look and think about my intent in running a freelance business
  2. I’m more focused and professional in my conduct

This isn’t to say or infer that I wasn’t before. But going through this process changed me, because of all the topics that I started considering in such depth; which in turn, led me to consider other aspects of how the world sees my freelance business. Topics such as letterhead, email signatures, they way that I write and communicate with clients and so on.

Read the full post.

It’s always great when we receive such positive feedback from our clients.  How can we make a difference with how you perceive your business?  Contact us today.

 

Creatives can neglect contracts at their peril.

The subject of terms and conditions traditionally for Creatives is usually the last issue on their mind. It’s also common for Creatives to acquire someone else’s terms and conditions or write their own contracts. Unfortunately the credibility of these contracts is only tested in times of dispute; so contracts drafted in bullet points format or acquired from an unreliable source generally don’t contain the correct enforceable clauses to assist the business to resolve issues that arise.

Similarly, those many companies who choose to do business on a handshake, as honourable as that sounds, find the frailty of the contract is exposed when a dispute arises, as there is no real legal detail or proper fall back position to solve disputes. Writing down the details of how you’d like to do business is a simple idea and best captured in a contract that is tailored to the relevant business sector and business type.

There seems to be a natural resistance to formality and detail, yet during times of disagreement it’s often the details that will protect a business.

Terms and conditions can be for many Creative businesses a way for outlining ‘how they want their customer to engage with their services, from quotation to completion of the work.

Colin Hardie, Director at Ubisan a web commercialisation business commented, ” Create Ts and Cs listened and managed to distill the more specific elements of my business into a coherent and highly professional set of bespoke terms and conditions…. something that would have been impossible to achieve with an“off the shelf” alternative”.

This also means, outlining your payment terms, the IP ownership and managing scope creep through effective ‘sign off’ processes captured in the Terms and Conditions. All these issues are central to ensuring you get the work done on time and in-line with your Creative business strategy while getting paid, which can assist cashflow and promote sustainablity within the business.

David Atkinson, Director at design agency CO2 Design, said,” Before we got a bespoke set of Ts and Cs, we like many others got a set from the web or looked at others, now we have a ratified contract that communicates clearly with our clients.  Also, we’ve managed to reduce the amount of debt within our business to a level we can manage, which has helped the business”.

Its also common for some potential clients to request a set of Terms and Conditions prior to doing business, if you don’t have a relevant set of Ts and Cs, then you’ll simply accept the terms offered by the client or in some cases run the risk of signing up to a contract which is packed with clauses no one knows the consequences of signing up to! Meaning you get paid and agree to the terms according to the clients terms and conditions.

David McCullough, MD of Urban Niche, a social media marketing business based in Edinburgh commented, “Urban Niche contracted Create Ts and Cs to draft a bespoke set of Terms and Conditions to support our bid for NHS business, I am delighted to say we won the business and believe Create Ts and Cs contributed greatly to our bid and ensured we had the correct commercial contract; helping us to present our business professionally and prepare appropriately for our negotiations”

Having a relevant, sector focused contract in-line with the Creative business is one way of avoiding unnecessary disputes and allows the Creative business owner to concentrate on doing the work they enjoy doing .

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Create Ts and Cs provide a bespoke set of Terms and Conditions for your business at a fixed price, this unique approach to individualising commercial Terms and Conditions allow Start up and SME sized businesses the opportunity to protect themselves, manage risk and guard against future unnecessary disputes at an affordable price. Download: terms & conditions | privacy policy