Managing Relationships

If you are going into business with others (individuals or companies), it is important to have a written agreement which governs the relationship between you.

Partners/Shareholders

When more than one person is involved in the management of a business it is important to set out, in an agreement, how the business is to be managed and the rights of each partner or shareholder.

This agreement will set out, for example, how profits can be extracted by the partners or shareholders, and how major decisions are made. This agreement can also be crucial in limiting the damaging effects of any disputes by clearly setting out the means by which disputes should be resolved.

Customers and Suppliers

It is important to ensure you have a legally binding contract (a promise by A to fulfil an obligation to B in return for payment) to manage your relationship with suppliers.

With clear contract terms in place you can minimise disputes, protect your liability and confidential information, and specify when the relationship can be terminated.

A formal contract is a business asset, documenting the commitment of the customer or supplier for the length of the contract. This demonstrates clear value in the business for potential investors.

For ease and standardisation, it is worth putting in place standard terms and conditions (T&Cs) for customers and/or suppliers. You should also carefully review any T&Cs provided by a customer or supplier, in particular any triggers and processes for termination, and any surviving obligations and liability after termination – these will determine who is liable and for how much if things go wrong.

Employees

Different rights and responsibilities will apply depending upon the nature of the contractual relationship between you and those who work for your business:

Self Employed Consultant

A consultant provides services for its clients but is not an employee. Engaging a consultant may allow a business greater flexibility free from certain liabilities which govern an employment relationship. However, this flexibility should be for the benefit of both parties and employee obligations cannot be avoided if the relationship is not genuinely a consultancy arrangement.

Care should be taken with consultants to ensure the working relationship is confidential and ownership of any intellectual property developed by the consultant is owned by your company.

Worker

Workers are people who provide services personally, but who, for certain reasons, do not meet the definition of an employee. An example is an agency worker. These people have less extensive legal protection and rights than employees of a business.

Employee

Employees benefit from the most extensive statutory protections. Employee status is determined by considering a number of factors, including the degree of control exercised by the employer over the employee, and the requirements for the employer to provide work and for the employee to have to do that work.

An employer is obliged to PAYE (Pay As You Earn) and National Insurance Contributions (NICs) at source from the employee’s salary. Employers are required by law to give their employees a written statement of the main terms and conditions of employment within two months of their start date.

In addition to employment contracts some policies are required by law, such as those dealing with disciplinary and grievance procedures; other policies are practical in nature, such as absence management, equal opportunities, data protection, IT usage and social media use.

This is a complex legal area and expert advice should be obtained.

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