Legal Contracts and Insurance

Most transactions involve some form of written agreement – this will be a contract. Every vendor, supplier, consultant, and employee is associated with your business through contracts. Rent and services also involve contracts. Without contracts, there would be disorder.

Effectively negotiating contracts that are beneficial to your company is a very important skill that helps the success of your business.

Small business owners often ignore contracts, and in many cases, a handshake and an agreement are enough to satisfy. However, should something go wrong, that may not be enough. It is in those cases that a contract is most important to ensure that what needs to be done is done.

You need to understand what the contract contains before you sign it. Seek advice from a specialist service such as a lawyer if you are unsure about any of the provisions in a contract.

Examples of contracts or agreements in business include:

Contracts protect both parties in the business relationship. Negotiating a contract is about creating a fair agreement, where both parties' needs are satisfied. In the long term, that's the only type of business relationship that will be successful.

When entering into a contract, you should do ‘due diligence'. Notably, you check each condition (called provisions) to make sure you understand what it says and how it affects your rights. You only sign a contract if you do so freely. This is because courts will invalidate contracts where one party coerces another into signing a contract. Lawyers refer to these individuals as being under ‘duress'. Before entering into an agreement, consider obtaining legal advice.

An important reason for signing a contract is to limit liability. A well-written contract can limit your liability in the event of an unforeseen accident or product failure. Liability limits are typically spelled out in contracts, in these instances a lawyer could construct the contract. For more general and common contract relationships that are very similar – a template can be used by a small business.

How To Prepare A Contract - Follow the process by selecting how to prepare a contract, information provided by www.business.gov.au. A contract can be binding for many years, and you could pay a penalty if you breach its conditions (known as provisions). To protect your rights, it pays to know what to look for.

How A Contract Is Terminated - In a perfect world, a contract will end when the work is complete and you've been paid. But not every contract ends as planned. Find out about the different ways a contract can end below.

Source: www.business.gov.au

When developing your business plan, one of the areas you need to research is the products and services you will provide. You will need to negotiate contracts with all your vendors if they are providing products or services to your business. Negotiating a procurement contract ensures that both parties are clear on the agreed arrangements. 

All suppliers to your business need to be on a contract. At a minimum, that contract needs to include:

• What you are procuring.

• The delivery schedule – when the products will arrive.

• The agreed price of the item or service.

• Payment terms.

• Any Default terms, in case of non-delivery.

• Shipping requirements and which party is paying for shipping.

• Contract termination requirements.

 Reasons for a procurement contract include;

• Having a contract provides security for your company, in your business relationship with that vendor.

• You should have a contract with all vendors even if you have a personal relationship with them. The contract will protect both parties.

• The purpose of a contract is to bring clarity and understanding to the arrangements within the business.

All contracts for the procurement of products or services that are entered into must be in accordance with the Business Plan.

You will develop your product mix to ensure a range of products and services that meet the needs of your target market, and that your profit forecasting can be achieved based upon your Business Plan.

As you develop your business, and decide upon the products you wish to stock, and services you wish to provide, it is important that you have a right to use them. If you sell or use items you don’t have the right to use, you can be sued. The owner of that intellectual property has the right to sue your business. It is ok for businesses to use ideas, designs and materials that belong to others as long as they have secured the right to do so. Anything that is considered “intellectual property” requires some sort of licensing or compensation for use.

Similarly, you may consider, procurement safeguards in the pursuit of being sustainable. A goal to operate a business that seeks to reduce – and eventually eliminate – any negative environmental and social impact caused by the goods and services it depends upon, by continuously striving to anticipate, avoid and address issue-specific hotspots in its supply chains. 

All companies are mutually accountable for the environmental and social impacts caused by the production and delivery of the goods and services they depend upon.

This goal requires a company to implement policies and procedures that continuously seek to increase the future-fitness of its purchases, with a particular emphasis on anticipating, avoiding and addressing issue-specific supply chain hotspots.
-www.futurefitbusiness.org/goals/be04/

A major cost to your business and a major business decision is where to locate your business, and should you rent or buy the premises. You will decide on either by referring to your Business Plan. 

A large part of your Business Plan is the projected growth of your business and how you will achieve that growth. For some businesses, that requires increasing capacity in existing facility, and for others it requires opening up new locations.

The commitment to buy a property is a major decision and a major commitment. Starting out on a limited budget, renting directly from a property owner or a real estate agency is often the only option. This could be for a fixed period on an ongoing basis. You would have to sign a commercial lease agreement in this instance.

Instead of leasing an entire premises you may be able to rent part of an existing business – this is called sub-letting, and you would have to sign a sub-lease agreement. 

Consider the following before committing to any lease;

• What space you need.

• What rent you can afford to pay.

• How long the lease needs to be. 

• How do you renew it.

• Any zoning restrictions that limit your business.

• Who will be paying ‘outgoings’ – for example, who pays council rates, water costs, security, maintenance, legal fees, and stamp duties.

A Commercial Lease Agreement is a contract between a landlord and a tenant. It lists premises, all parties to the agreement, and their rights and obligations.

Your contract is a legal document. So you need to be sure that you understand everything it says. If you don’t understand it, get a lawyer to explain it to you. You will be bound by that contract, so you need to be sure that it meets the needs of your business.

Every landlord and tenant should ensure that the following terms are included in their written lease agreement to protect their interests and prevent future misunderstandings that could potentially lead to litigation.  

• Parties to the Lease - the lease should name all landlords and tenants who are bound by the agreement.

• Description of Property - in many cases this may simply be an address and unit number. However, in some cases a more detailed description may be necessary.

• Rent Amount - a dollar amount of rent should be specified.

• Rent Collection Terms- including what day of the month rent is due and where rent is to be sent or collected.

• Term of the Lease - the lease should indicate when the lease begins and ends.

• Termination of the Lease - this should include both a description of when the landlord can end the lease (for example, for nonpayment of rent or significant damage to the unit), and a description of when and how the renter can terminate the lease (for example, a month to month lease may be terminated with one month’s notice and no penalty but a year’s lease may require a significant financial penalty).

• Security Deposits - the amount of the security deposit and the terms of its future release to the renter should be specified.

• Late Rent Fees- this clause should include the amount of the late fee and the amount past due the rent must be in order for the landlord to impose such fees.

• Utilities - the lease should indicate whether the landlord or renter will pay the utilities.

• Condition of the Premises - the condition of the premises at the beginning of the lease period as well as the tenant’s responsibility for the condition of the premises during and at the completion of the rental period should be included.

• Repairs by Landlord - the lease should specify what repairs are the responsibility of the landlord.

• Alterations to the Premises - the lease should describe what, if any, alterations the tenant may make to the property.

• Damage to the Premises - the lease should describe whether the landlord or tenant is responsible for damages to the property.

• Right of Entry and Inspection - the lease should include a clause that allows the landlord to enter and inspect the property upon reasonable notice.

• Resolution of Disputes - the lease should explain how disputes will be resolved.

Source: www.resources.lawinfo.com/landlord-tenant/essential-terms-for-a-lease-agreement.html

Insurance for your business is important to cover you for unexpected events. Without the appropriate insurance you may be unable to trade or have large out of pocket expenses, which could result in you having to close your business. You cannot eliminate all risk from your business, and some circumstances are simply out of your control. To protect your business from rare but possible events and catastrophes, you pay a fee called a premium to buy insurance cover.  

Insurance companies offer many types of cover, they call these insurance products.  Some examples related to business are;

Source: www.business.gov.au

To establish your insurance requirements you need to;

• Identify risks of harm or damage - Depending on your business activity and its location, you would have to figure out what potentially could harm or damage your business. Other risks could relate to your location. For example, your workplace could be in a town that is prone to bushfires or floods. Industry associations are a good source of advice as to what risks you might experience as you conduct your business.

• List required insurance cover - After working out which risks could threaten your business, select the insurance cover you need. Remember that some insurance will be compulsory.

• Source Insurance products and compare their features - Once you know what insurance cover you need, next you have to find out what cover insurance companies provide. Some insurers are specialised and may sell only one type of insurance such as travel or maritime insurance, other companies offer broad insurance cover.  Some insurers also offer insurance package policies specially tailored for different business types. Then compare the features of each selected insurance policy. Check with your professional associations - they sometimes offer industry-specific indemnity insurance at a much lower cost.

  Talk to a licensed insurance broker, business advisor, or insurer for detailed advice.

  You can check your insurance broker’s license on the Australian Securities & Investments Commission's professional register.

• Choose Insurance products - After assessing which insurance product or products gives you the most cover for the premium you are willing to pay, select the insurance you want to buy.

• Submit an Insurance application – Complete an insurance application and submit online or send it your insurance agent. 

• Receive a temporary cover note - Some insurers may give you immediate cover. In this situation, the insurer sends you a cover note as evidence you are covered. 

• Receive Insurance cover - After the insurer approves your application, the insurer informs you that they will officially insure you. 

• Pay a premium - Next, you pay the premium that buys the insurance cover. 

• Receive a certificate of currency - To provide proof that confirms you are insured, the insurance company sends you a ‘Certificate of Currency’. You use this to show you have insurance. 

As your business grows, you may develop a diverse group of employees, suppliers, and customers. While diversity often enriches the workplace, cultural differences in business can bring complications as well. Various cultural differences can interfere with productivity or cause conflict among people. Stereotypes and ignorance about different traditions and mannerisms can lead to disruptions and the inability of some employees to work effectively as a team or to handle business dealings with suppliers, or potential customers.

• Personal Space Expectations - Cultural differences in business include varying expectations about personal space and physical contact. For example, many Europeans and South Americans customarily kiss a business associate on both cheeks in greeting instead of shaking hands. While Americans are most comfortable at arms-length from business associates, other cultures have no problem standing shoulder-to-shoulder with their peers when speaking. It's not unusual for female colleagues in Russia to walk arm in arm, for example, while the same behavior in other cultures may signify a more personal relationship and not a professional one.

• High and Low Context - Different cultures communicate through various levels of context. Low-context cultures such as Canada, the United States, Australia, New Zealand and most of Europe, require little or no explanation of orders and requests, preferring to make decisions quickly. High-context cultures, which include most other Eastern and South American populations, require and expect much more explanation about orders and directions. Businesses that operate with a low-context form of communication spell out the specifics in the message, while those from a high-context communication culture may expect and supply more background with their messages.

• Differing Meanings of Cues - Western and Eastern cues have substantially different meanings in business. The word "yes," for example, usually means agreement in Western cultures. In Eastern and high-context cultures however, the word "yes," often means that the party understands the message, not necessarily that he agrees with it. A handshake in some cultures is as ironclad as a contract. A period of silence during negotiations with an Eastern business associate may signify displeasure with your proposal. While frank openness may be desirable in Western cultures, Eastern cultures often place more value on saving face and avoiding disrespectful responses.

• The Importance of Relationships - While Western cultures proclaim to value relationship-based marketing and business practices, in high-context cultures a relationship involves longtime family ties or direct referrals from close friends. Judgments made in business often are made based on familial ties, class and status in relationship-oriented cultures, while rule-oriented cultures believe that everyone in business deserves an equal opportunity to make their case. Judgments are made on universal qualities of fairness, honesty and getting the best deal, rather than on formal introductions and background checks.

Cultivate Cultural Understanding
Understanding cultural diversity in business is important to interacting with people from differing cultures while preventing problematic issues. If you know you'll be negotiating with foreign businesspersons, for example, study in advance how their manner of doing business differs from your own. You'll find that many Eastern cultures, like and expect to have lengthy informative sessions before negotiations begin. Don't be surprised if colleagues and customers in the UK and Indonesia are more reserved with their responses and hide their emotions. Those in France and Italy, like the US, are more effusive and aren't afraid to show their emotion.

Make sure, too, that your staff understands that cultural differences matter in business and can easily be misunderstood by either party. Above all, when you encounter unexpected behavior, try not to jump to conclusions. Someone who seems unimpressed with your ideas may actually be from a culture where emotions aren't readily expressed. Potential cultural barriers in business can be avoided simply by understanding the impact of culture on business environment.

source: https://smallbusiness.chron.com/examples-cultural-differences-business-21958.html

Legal Implications

One of the benefits of cultural and diversity training is avoiding expensive and time-consuming legal issues. Federal regulations, along with laws of every state and territory in the nation, prohibit discrimination against workers or clients based on their color, religious faith, physical disabilities, age, race, or sexual orientation. Training your employees in cultural and diversity areas will help you avoid being sued because someone practiced discrimination in the name of your company.

Associated legislation in Australia includes;

The Age Discrimination Act 2004.

The Disability Discrimination Act 1992.

The Human Rights and Equal Opportunity Commission Act 1986.

The Work Health & Safety Act 2011.

The Racial Discrimination Act 1975.

The Sex Discrimination Act 1984.

The Workplace Relations Act 1996..

The Australian Multicultural Bill 2018.

Benefits;

Managing Diversity in the Workplace;

• Encourages inclusion, participation and the full contribution of all staff to the goals of the enterprise.

• Actively looks for and capitalises on the benefits of having a diverse workforce.

• Ensures compliance with legal obligations such as safety and equal employment opportunities.

Managing Diversity in the Marketplace;

• Recognises and accommodates the diversity of customers, clients and suppliers in the marketing and provision of goods and services.
• Develops and enhances the reputation of the enterprise among diverse groups in the community and in international markets.

Challenges;

• Complying with equal opportunity, safety and anti-discrimination regulations.

• Competing for talent and overcoming skills shortages.

• Adapting to the realities of increased workforce and labour market diversity.

• Managing workplace and customer relationships.

• Developing and maintaining good community relations.

• Meeting increased workforce expectations of conditions and opportunities.

• Marketing to and serving culturally diverse domestic and overseas customers.

• Competing in a culturally diverse domestic and international business environment.

• Ensuring ethical conduct, due diligence and social responsibility.

Source: https://amf.net.au/library/uploads/files/MCD_Training_Program_Resource_Manual.pdf

When you start a business, you need to understand what laws apply to your new business. Find out the common legalities your new business may need to comply with, such as registrations, contracts, marketing and employment. Additionally, consult a legal professional, or business adviser familiar with your industry, for advice on which areas require your compliance.

• Refer to Legal essentials for business.

• Check out Industry information to learn more about your industry or talk to your industry association.

The legislative requirements applicable to setting up your business may be in relation to;

• Industry standards and initiatives.

• Grants or funding.

• Licences and permits.

• Insurance.

• Taxation and record keeping.

• Employing people.

• Workplace health and safety (WHS).

• Environment.

• Government organisations.