Understanding the common legal issues that arise in the running of a business

Businesses are constantly faced with legal issues at every stage of their existence. From the choice of structure through to the management of contracts and the resolution of disputes, there are a multitude of issues. 

Good record keeping, sensible policies and an early approach to any disagreement will go a long way to helping the owner make the right decisions. 

If you hire a business law firm to help you, an attorney like the ones at Clearwater Business Law will look at the wider role that business law plays in helping a business to understand its obligations and deal with the commercial issues that arise.

Why business law matters.

A business is built on the relationships it has with its customers, suppliers, employees, contractors, lenders and co-owners. Each of those relationships will have duties and expectations. The owners need to be fully aware of what the agreement requires of them. 

They need to know who is going to do what and when the payment is due. It's also important to know what happens if one party fails to meet their obligation. 

The legal requirements will of course change as the business grows. A new company may decide to adopt a structure and document ownership in the appropriate way. An existing company may find itself in a contract dispute. There may be a problem in collecting, or there may be a dispute between the shareholders.

Choosing a business structure.

The key issue is how much the various people will own the business. How decisions will be made and how the profits and losses will be shared are also important considerations. The formation documents must reflect the actual arrangement between the owners. 

A business may also require a license or two and may require various registrations and internal records. The matters should be looked at prior to trading commencing and reviewed again if the business changes.

The effect will be dependent upon the contract and the facts. Not every error amounts to a serious breach. A material breach will go to the root of the agreement. A minor breach will leave the bulk of the agreement intact. The remedies available will be governed by the law and the terms of the contract.

Partnership and shareholder disputes.

Owners can disagree on everything from strategy and expenditure through to responsibilities, access to records and the distribution of profits. The ownership agreement will contain provisions as to voting rights. There may be management rules, transfer rules and deadlock resolution mechanisms. 

Shareholder disputes will often be about control of the company, access to financial information or the decisions which impact on the owner's investment. Partnership disputes will be of a similar nature with respect to authority and obligations. 

Financial records and copies of relevant correspondence should all be kept up to date at all times. If a dispute does arise, then a careful review of the governing documents will be of great assistance in identifying the issue and the options available.

Construction and payment disputes.

Construction projects will invariably involve the property owner, the general contractor, the subcontractors, the suppliers and the vendors. The dispute may be over delays, defective work, or change orders. It may be over unpaid invoices or the apportionment of additional costs. 

The written scopes of work and the documented approvals will be key to establishing what each party agreed to provide. Payment disputes will also involve construction liens. In some cases, a contractor or a supplier will go down the lien route to assert a claim for the labor or materials. 

The rules, time limits, notices, and requirements for filing will vary from jurisdiction to jurisdiction. No party should ever assume that a lien is good or bad without looking at the documents and the relevant law.

Negotiation, mediation, and litigation.

Participation may be voluntary and agreement to proceed to court may be required. Litigation will be required where there is a serious dispute which the parties are unable to resolve or where a court decision is required. 

The owner should always consider the likely time, cost, business impact, and enforceability of each of the options available to them. A lawsuit should not be the automatic next step in every situation.

It may involve pleadings, the collection of evidence, a number of motions and hearings and possibly a trial. It will take months or longer and will be dependent upon the complexity of the matter and the court list.

When to get legal advice.

A business will often find it beneficial to have a legal review prior to signing a major agreement. This is particularly the case when a business is about to change hands, when buying or selling assets, when responding to a demand letter, or when facing a lawsuit. 

The advice will help with the identification of the deadlines and will clarify the options. There is no one-size-fits-all approach to any dispute. The right approach will be dictated by the facts of the case as well as the governing documents, the applicable law, and the business's priorities. 

Good planning, clear communication, and reliable records will all assist a business in dealing with a legal dispute by providing a much better understanding of the obligations and the options available.