When Was your Last Business Health Check?

Tuesday 22 May 2012

There are many legal requirements that companies fail to comply with time and time again.  Here, Emma Lewis, Corporate and Commercial Solicitor at Slater Heelis highlights some of the more common ones, how they can be remedied, and sets out opportunities that companies often ignore: 

Directors Duties

Directors are subject to a wide range of duties, both under the Companies Act 2006 and other laws and regulations e.g. relating to health and safety and insolvency.

The Institute of Directors and the HSE have jointly issued guidance on directors' duties on health and safety at work.  Although compliance is not compulsory, adherence to it will greatly improve the prospects of demonstrating compliance with health and safety law and directors duties generally.

There are a number of potential penalties for a breach of director’s duties and these can  include:

• Being liable for the debts of the company,

• Being prohibited from being a director for up to 5 years, or

• In certain circumstances, imprisonment.

Filing documents with Companies House

All companies are required to file various forms, returns and documents with Companies House.  Some of these are required to be filed on an annual basis but others are required to be filed as a result of a particular event e.g. appointing a new director.

If a company does not use professional advisers to file these documents then it must be aware of its obligations and ensure that it files the relevant documents within the required timescales.  

We often find that documents that have been filed at Companies House are completed incorrectly and it is now possible to submit a second form to correct inaccuracies in certain types of form previously submitted to Companies House.  

If a company fails to file a requisite document at Companies House on time then it and its officers are guilty of an offence.  These offences differ depending on what document is required to be filed, but usually the company and every officer is liable for a fine.  For repeated failure or serious offences officers can be imprisoned and/or the company can be struck off the register.

Most of the documents that a company files with Companies House will be dealt with by its professional advisors but it is important that the directors are aware of the filing requirements particularly if they do not instruct professional advisors.

Maintaining Records

The Companies Act 2006 requires that every company has to keep certain records including records of all resolutions and minutes of meetings of the directors and shareholders (for at least 10 years), and registers of its shareholders, directors, secretaries, and charges.

These records need to be kept at the company's registered office or another address notified to the registrar of companies. A failure to keep accurate records can result in a fine for the company and/or every officer of the company.

This is a fairly simple issue to rectify and requires the directors or secretary (if the company has one) to put systems in place to ensure that proper records are kept and that these are monitored and updated on the occurrence of relevant events.

Education

Companies can reduce the risk of non-compliance by ensuring that the directors are educated as to what their responsibilities are and to what legal requirements companies are subject to.

Before agreeing to the role, a prospective director should try to educate himself as much as possible and ensure that he is aware of his individual legal requirements and the legal requirements of the company. This process of education should then be ongoing and reviewed on an annual basis. 

Getting a company’s house in order can also bring opportunities. Some examples of these are set out below.

Intellectual Property

It is rare for a company to not have any intellectual property, even if this is just the goodwill in its name and reputation. Many companies are not fully aware of their intellectual property, how to protect it, and how to exploit it.

A company could protect its goodwill and reputation in its name and/or logo by registering them as trade marks. This protection makes it much easier to sue someone if they are using the same or a similar name or logo and taking advantage of your goodwill. It may also be a valuable asset to a potential purchaser.

If your company designs or produces unique items then it may have design rights in these and it should consider registering such rights in order to prevent unauthorised copying of these items. Design rights arise automatically and do not have to be registered, but the scope of protection increases significantly if they are registered.

If your company has produced a new invention this may patentable and if a patent is registered then you will have a 20 year monopoly on the invention.

Each of the above intellectual property rights together with any copyrighted material the company owns can also be exploited by licensing them to other parties who may wish to use them. This can result in a new income stream for the company and greater control over how its intellectual property is used.

Employees

One of the most important assets of any business is its employees but we often find that companies do not have written terms of employment in place. Not only this is against the law, but it also means that an opportunity is missed to tie employees in to the business with sufficient notice periods and restrictive covenants and to ensure that they do not use the company’s confidential information in a way which may harm the business. 

In addition, whilst the law states that most intellectual property that an employee develops during the course of their employment will belong to the company, it is also advisable to ensure that this and other intellectual property is stated as being owned by the company to ensure that employees cannot hold the company to ransom at a later date. 

We would advise that a business not only has employment contracts in place but that it ensures that these are robust to ensure the effective running of the company and to protect it.

Terms and Conditions

We often find that companies trade without any standard terms and conditions, or if they have these then they are often inadequate for the company’s purposes or do not relate to how the business operates. Having clear standard terms and conditions upon which you do business gives you certainty as to the terms of any contract that you enter into and allows you to dictate those terms so that they can be in your favour (to the extent legally permissible). 

Such terms can include clauses that allow you to charge default interest on late payments, allow you to retain ownership of goods until they are paid for, and limit your liability (as far as legally allowed).

The above are the major issues that have been identified by us through our work advising businesses and whilst carrying out our business health check. Most of these issues can be dealt with relatively simply if addressed early. Our business health check has been developed by our firm’s commercial team and covers areas where companies may be exposing themselves to risk including those listed above. It is a free service that is open to any company and it may help you to identify any legal pitfalls that your company faces.

Emma Lewis is a Solicitor in the Corporate and Commercial Department of Slater Heelis. To arrange a free business health check please contact Emma on 0161 975 3805 or at emma.lewis@slaterheelis.co.uk.