Know law affecting small business
Updated: Sep 8
Authors: Candice Pillay – Director
Seven Rs you should be familiar with and comply with in order to legally establish maintain your start-up enterprise
Whether you are an informal trader, entrepreneur or a seasoned business owner, legal compliance in all aspects of your business can be confusing and costly. To establish and grow your business, you need to know how the law impacts, aids and/or restricts you. This information can be grouped under the seven Rs: registration, regulation, relationships, restrictions, risk, revenue and rescue.
When do you register? Some businesses start as a sole proprietorship, which means the business is owned and operated by an individual, then grows steadily. As growth occurs, you and your business face greater risk and the exposure as a sole proprietorship, hence you may require the protection a formal business structure provides.
The legal challenge is to determine at what point the business should change to a more formal business entity. For example, as a sole proprietor you may get a contract that will require a substantial financial outlay prior to completion. This exposes your personal estate until the contract is concluded.
It is therefore advisable to have a legal vehicle to protect your personal assets from risk should anything go wrong with the contract.
Regulatory compliance There are a number of laws that regulate business enterprises and many small business owners get caught in the process of registering for tax, with the Department of Labour and obtaining licences, among other requirements. With so many commitments to fulfil, there seldom is compliance in all the necessary areas.
Vigilance is required to ensure that all the gaps for regulatory compliance are covered. Some of the common mistakes include not having or not renewing the requisite licences for your business; not filing your tax returns periodically; and not knowing at what point VAT is actually payable.
Regulation of business relationships There are a number of business relationships such as shareholders, clients, employees, suppliers and joint ventures that must be protected by the appropriate contracts to manage expectations of the various parties. If this is not done, you can finds yourself in a complex web of relationship expectations that cannot be met.
Challenges that restrict growth Among the legal challenges that could restrict your business’s growth, are issues relating to employment laws or collective bargaining agreements binding to your business. There may be restrictions on where your business may be located or even on what type of products you can manufacture on your premises.
These restrictions must be addressed or the business restructured to take into account the legal restrictions placed on it.
Managing business risk Risk is anything that exposes your business or could affect your income, so dealing with this challenge may require a range of dispute resolution policies. One such example is a process for revenue collection to ensure your debtors are honouring their payment agreements.
Always remember that failure to deal with a business risk often creates a growing hole in your revenue stream as businesses will throw money at the risk, with little success.
Protecting your revenue Businesses often do not realise the importance of legally protecting their revenue generator. This can be a simple idea, a process, a formula or a business or training model. Your income generator should be protected through copyright or by patenting your product, idea or design. Lack of protection can lead to illegal use of your product, which will dilute your brand and ultimately affect your income.
Business rescue It is important to guard against business rescue by being vigilant about debt recovery and addressing all legal challenges that could affect your business’s viability. Take the time to understand the business rescue process so that the integrity of your business is maintained.
Business rescue is a process, and while it may evoke feelings of failure, desperation and frustration, understanding the process will go a long way in determining whether the business turns around.
Starting a business can be both exciting and daunting, but through the support of a legal professional, you can navigate safely to ensure that your start-up enterprise has the legal stability to establish and sustain itself.
Lawtons Africa is a South African law firm. With roots that grew out of seeds sown in down-town Johannesburg in 1892, our history features various changes and different names. Our team of lawyers, including directors, consultants, associates and candidate attorneys is highly qualified, market-recognised and skilled. For further information, visit www.lawtonsafrica.com