Legal Advice for Small Businesses

Do you run a business? What sorts of legal issues do you normally encounter when running your business? For that matter, when was the last time you saw a solicitor? Would it be before you started your business – or only after you encountered a problem?

Solicitors are a little bit like doctors. You usually only ever see a doctor when you are sick – when something has gone wrong with your body. In the same way, businesses usually see solicitors when something has gone wrong. That shouldn’t be the case.

It is understandable that a majority of businesses are averse to seeking legal advice from a solicitor. Legal advice is often seen to be intrusive, complicated, annoying, and more often than not – expensive. However, the reality of the situation is that in order for your business to be successful, you need to get your business in order – and that includes sorting our your legal obligations as well as seeking ways in which your business can better protect itself. And the sooner you can do that, the easier it is to deal with problems in the future.

What sorts of matters do businesses commonly deal with? Terms of Trade, Trade Practices, Compliance with ASIC, Intellectual Property, Confidentiality, Leases, Bad Debts, Contracts, Disputes… the list is innumerable. Yes, you can ignore it or attempt to deal with it on your own. However the bottom line is that if something goes wrong, a significant sum of money can be spent attempting to rectify the problem. In contrast, investing a little time and money into getting some advice beforehand can greatly reduce the chances of such an incident occurring.

After all, if you have peace of mind in these aspects, you can better concentrate on running your business.

We want you to succeed – so if you ever need any help or a quick consultation and review of your business practices – please do not hesitate to call us!

Director’s Duties

No matter the size of your company, if you are a director of a company, you have a number of duties and responsibilities to both the company and the public. These duties are primarily imposed by the Corporations Act 2001 (Commonwealth). In addition to their duties under the Corporations Act, directors have a number of other duties set out in various other legislation as well as the common law.

It is important to understand and comply with these duties. The failure to comply with these duties may result in directors being personally responsible for any loss caused by the breach of these duties, or even criminal prosecution by the Australian Securities and Investment Commission (ASIC).

The most significant duties of directors are:

To act in the best interest of the company

A director must act in the best interests of a company and to its shareholders as a whole, ahead of their own personal interest. This can get confusing especially in a situation where the directors and the shareholders are one and the same – a common scenario in small businesses. It is important to remember that the company is considered a separate legal entity, has its own interests, and these interests may not be the same as the director’s interests.

To act with care and diligence

A director must perform their duties with the same care and diligence that a reasonable person would have should they be in the director’s shoes.

To act in good faith

A director must perform their duties in good faith, and dishonestly or fraudulently.

To use their position as a director for the proper purposes

A director has an enviable position that allows them to control the company’s business. It is important that they do not abuse this position to act in their own interest, or the interest of someone else. In addition to this, a director would commonly come into information as a result of his or her position. A director cannot use this information to act in their own interest or the interest of someone else.

To avoid conflicts of interest

Directors also have a duty to avoid any actual or potential conflict between their interests and the interests of the company. This arises from the duty of a director to act in the best interests of the company.

To prevent the company from continuing trade if it is insolvent

A director has a duty to prevent the company from incurring additional debt if there is a reasonable suspicion that the company cannot pay its debts when it falls due. This duty is not exercised for the benefit of the shareholders, rather it is exercised for the benefit of the creditors.

Other duties and responsibilities

There are numerous other laws affecting trade practices, taxation, environmental protection, and occupational health and safety that apply to companies. A breach of those other laws may give rise to a director being held liable for the breach.

Summary

If you are a director of a company, it is important to be aware of the core responsibilities and duties that have been imposed upon you by the law. While your primary duty is towards the company, you also have duties towards the shareholders, creditors, and the public. The failure to comply with these duties may result in directors being held personally liable for breaches of these duties. If you are unclear about the duties you should comply with or you are unsure of where you stand, you should seek legal advice as soon as possible.