Creative Businesses

No Warranty No Clarity

This blog is part 2 of a series of 5 that is preoccupied with small business using contracts to avoid contractual disputes. Court is an expensive pursuit and building self-remedy or clauses into your contract, that are enforceable and offer solutions to problems that may arise is practically useful to small businesses. A considered contract can help you save money, time and effort.

Warranty in simple terms means performance. So outlining how the product or service will perform seems obvious but in many cases, the details provided are scant at best. In many cases, the contract generally fails to outline the key aspects of performance and in turn creates ambiguity. It’s this grey area that can lead to further issues, as during times of dispute, areas of uncertainty become points of discussion or argument.

This gets even more troublesome when there’s a returns policy or a maintenance/service agreement to support post installation or delivery. Stating what is covered by the contract with regards to the basic product’s functionality is one thing but when something breaks or fails to work, what then? Remember these products or service are manufactured and delivered by humans, so things happen, the important thing is outlining what happens next?

Going to the trouble of employing the right contract drafter to ask the right questions and create a contract that is designed to help both parties work together long-term, is worthwhile. Contracts are avoided by those who see no need for outlining the negatives…..but knowing what might happen in the event of….is arguably good customer service and is considerate to both you and your customers time and energy.

The next blog will focus on intellectual property…..

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.

End

 

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.

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. 

 

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 .

End

 

Keeping HMRC off your back when employing contractors.

If you are self employed, then you’re part of a significant growing trend, the latest statistics from the Office for National Statistics show that a record 4.1 million or 14.2% of the entire workforce are self employed.

As your business develops, it’s not uncommon to consider expanding the headcount.  With a variety of pressures on business owners and the perception that employment law is complicated and employing a staff member costly, more and more companies are deciding to hire contractors instead of taking the option to employ staff.

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

A recent 7 year dispute that concluded in 2011 involving Airbus UK and reported in lexology.com, demonstrates how HMRC challenged the relationship between Airbus UK and their contractors (self employed persons). HMRC deemed the relationship to be that of an employer to employee.  A negative outcome for either party would result in back dated tax, national insurance and employee related costs to be paid to HMRC.

The Tribunal found in favour of Airbus due to contractual clauses signed by both parties. What is scary is the length of the dispute and resources required to engage in such a dispute, once again demonstrates the complexities of IR35, but also highlights the importance that the courts place on the factual reality of the relationship between the parties. Whilst both contractor and company can strengthen their case by ensuring that their relationship is documented within a contract, it is essential that a contract reflects the ‘reality of the relationship’.

David Reilly, Director at Create Ts and Cs, who provides the service of bespoke contracts to companies who intend to work with contractors commented “It’s critical to protect the business by deploying the right contract when working with contractors, after all from a company perspective, it’s your end client and the work carried out must be of a standard that reflects your business.

He continues “From a HMRC perspective its critical both parties differentiate themselves by catering for the IR35 issue within the contract.  Also, both parties should enter into a contract that reflects their capacity to deliver, skill set and capabilities; it’s about achieving a balance.  This is best reflected in a purpose drafted contract specific to the companies involved”.

Dave Telling, Accountant and Director at Accys also commented “The problems with employment status begin when HMRC start asking questions, which is generally several years after the contracting commences.  If you don’t get it right at the beginning, the Revenue may well succeed in proving you’re an employee and you will have years of tax and national insurance to pay at once – an expensive mistake.”

Another important way of differentiating both parties is through each party acquiring their own public liability and indemnity insurance, which is also reflected in the contract between the companies. Chris Knight of Business Protect, an Insurance Brokerage says “If either party is working away from home, possibly within a client’s premises they should consider Public Liability Insurance of at least £2,000,000. If they are providing advice or their work may be subject to Errors and/or Omissions, then Professional Indemnity Insurance will be required”.

Chris continues, “It is becoming more common for the company to insist the contractor acquires their own insurances, after all they are a separate company or sole trader with their own requirement to protect themselves and cover their liability”.

It’s clear there are a number of precautions to be taken when hiring a contractor.  The steps you take to protect both companies will help ensure the experience is both a positive and profitable one.

 

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