6 common legal challenges for SMEs

Small and medium-sized enterprises (SMEs) are subject to many laws, rights and protections in Australia. However, navigating the ever-changing legal landscape can be taxing, especially if you don’t have in-house legal counsel to guide you. And, for those business owners who inadvertently breach a law, the consequences can be costly: both in terms of money and reputation. In our first blog, we’ve compiled a list of the most common legal issues that SMEs face so that you can take the right measures to minimise risk and protect your assets.

1. Changing business structures

A change in business structure often means that you want to reorganise the governance structure of your business. Usually, you do this to be more profitable, improve processes and adapt to the changing needs of your business. A few common reasons for changing business structures include changes in management or ownership, financial or operational reasons, business growth, or economic downturn. 

In Australia, the government recognises four different business structures: sole trader, company, partnership (of two or more people), and trust. Deciding on what business structure is right for your growing business can be complex, with advantages and disadvantages of each. To add to the complexity, each one of the four structures has different legal and tax obligations and protections, and choosing the wrong structure can result in serious consequences. To ensure you’re making the right decision for you and your business, it’s important that you regularly consult with a business lawyer for professional advice. 

2. Licensing requirements

In most industries, business owners need to hold certain government licenses, registrations or approvals to legally trade; these commonly include building licenses, liquor licenses, and real estate licences. Apart from being a legal requirement, they are there to ensure you fully understand the relevant laws and your employees know how to operate the necessary equipment.

Licensing is one of the most common legal issues facing SMEs because many business owners have limited knowledge around what licenses are legally required of them to operate. Often these licenses need to be renewed, and can be hard to keep track of, especially in growing businesses. It’s important for business owners to comply with government licensing restrictions and regulations to avoid fees or more serious consequences, including a temporary cease of operations. If you’re unsure of your legal licensing requirements for your business and its employees, it’s important to engage a business lawyer to review your compliance. 

3. Intellectual property protection

Protecting a company’s intellectual property (IP), including trademarks, copyrights, patents and trade secrets, are another common legal issue faced by SMEs. But, equally as important is not inadvertently infringing another company’s IP. When naming or rebranding your business, developing, or launching any new products or services, it’s important to first search for existing trademarks, patents, and copyrights. It’s not as simple as thinking of a name or concept and running with it; chances are, if you’ve thought of it, someone else has as well. And, if it is a new idea, it won’t be long until a competitor finds it too. Without the right IP protections and processes in place, it’s easy to trip up which may result in lengthy and costly legal battles. Legal professionals can help you launch and protect your IP assets including trademarks, patents and/or copyrights, and avoid making common mistakes. It’s important to engage them early in your product/service development process. 

4. Employee relations

The people in your business can be both your greatest asset and your greatest liability. Why? When it comes to the legal side of employee relations, there’s a lot involved. Aspects such as choosing the right employee classification, developing employee contracts, following the correct steps for employee termination, and ensuring that your business is work health safe compliant can be overwhelming. If these processes are poorly handled, it can leave you and your business exposed to claims of unfair dismissal, discrimination, bullying, harassment, and worker’s compensation claims. Employment law is always changing, so you need to ensure that your business is proactive in understanding and following industry-specific workplace laws and regulations. And, if claims arise, you must follow the correct protocol to avoid legal action being taken against your business. An employment lawyer can help you to understand your obligations and review your current workplace policies and procedures to mitigate risk and support employees. 

5. Contract management

Contracts are part of the foundation of any business. They range from simple agreements to extensive, resource-heavy, and legally complex contracts. In order to build successful long-term business relationships, and be operationally effective, you need to have strong contract management. However, drafting and maintaining contracts can be a tedious and time-consuming task and may put strain on an already lean company. However, weak contract management can be more costly in the long-run, and may result in missed renewal dates, early termination of contracts, and lost revenue. Ask yourself: am I getting the most out of my contracts? Are my resources better suited elsewhere? Consider outsourcing your company’s contract management needs to a legal specialist when you need it to better utilise your resources and increase revenue. 

6. Digital transformation

The sooner SME owners shift from manual processes to digital ones, the better off they will be. This shift is known as digital transformation, and it involves leveraging data, technology and software to glean meaningful data insights, conduct business more efficiently, and deliver better value to customers. 

A recent McKinsey report revealed that compared with companies who have not embraced digital transformation, data-driven organisations are 23 times more likely to acquire customers, 6 times more likely to retain customers, and 19 times as likely to be profitable. However, business owners must keep in mind that moving things online impacts data protection, IT security, contract design, and regulation. So, it’s important to tightly monitor compliance, intellectual property protection, and data security, and be aware of technology and commercial law. 

Access legal specialists on demand

If these issues are impacting your business, and you don’t have the in-house support to effectively manage them, contact CH-Earnest to learn how we can help with your organisation’s legal needs without the overhead costs. No matter the brief, and no matter the challenge, we can have the right legal expert for your business.