Key legal considerations for running a successful family business

May 7, 2017

What do Volkswagen, Samsung and Nike have in common? Apart from the fact that these are all large multi-national corporations (MNCs), what is perhaps lesser known is that these companies have in the past been described as family-owned businesses to varying degrees. Described as a “peculiar hybrid of family business, state-owned enterprise and public company”, Volkswagen was in the news in 2015 when one of the grandchildren of its founder was ousted from the chairmanship of the VW Group after a row with the rest of the supervisory board.

Managing a small family business can be a tricky thing, as mixing private and work life has the potential to bring about either a successful family empire or a long-running family feud. Here, we outline four considerations for managing the legal needs of your family business that will prime your business for success so that it can be passed on to the next generation:

1. Establish a formal business structure and proper corporate governance

While your business may have started out as a casual arrangement between you and another family member, the lack of a clearly thought out business structure and ownership options can threaten your business when disagreements arise during decision-making regarding the business. It is thus crucial to put in place a formal business structure and clear governance practices as your business starts to mature.

If you are still in the early stages of your business idea, head over to our post on how to choose the right business structure when starting up. Whether you choose to start your business as a sole proprietorship, partnership or a company, what is important is that you consider your various options and collectively make a deliberate choice with your other family business partners.

Your choice of business structure has a significant impact on your legal rights and obligations both as an individual and as a business, as well as on the relationships within your family. For instance, incorporating your business as a private limited company would require you to put in place certain corporate governance practices that includes holding regular meetings of the board of directors, filing financial statements by fixed deadlines, and so on.

If you have chosen to incorporate as a company, a legal document that you need to have in place is the Shareholders’ Agreement. A Shareholders’ Agreement regulates relations between shareholders of a company and how the business and affairs of a company are run. This helps to mitigate the risk inherent in entering into a business relationship by setting our rules for decision-making (e.g. number of shareholders required to approve certain actions), resolution of disputes between shareholders, and exiting the business.

2. Develop a family employment policy

While family members may be willing to help out in the business on an informal basis, it is best to put in place formal employment policies to ensure that expectations are aligned. Depending on the preferences of the owners of the family business, you may wish to put in place policies regarding the following areas:

  • The family member must have employment outside of the company of a minimum duration as a condition to employment;
  • The family member should receive a market salary and receive the same treatment as a comparable non-family employee with regard to benefits, training, performance reviews, and termination;
  • The family member should report to a non-family member, if possible.

Also read: Hiring friends and family – what you should consider

You should have, at the very least, Employment Contracts for your key employees, including family members. The Employment Contract regulates the relationship between your family business and the family members you employ, and ensures there is alignment on matters such as the hours an employee will work, holiday entitlement, and pay.

3. Think about succession planning

Many family businesses fall apart when it comes to making the transition from one generation to the next. It is thus crucial that you keep your eye on the long run and discuss succession for your business before the time comes for you to let go of the reins. While this is not a purely legal consideration, the advice that is often given is to put people into roles based on ability rather than lineage. Running the business with a meritocratic approach is likely to improve performance and help maintain balanced relationships between family member and non-family member employees.

If you intend to select your successor based on a formalised succession process, consider going about the process in organised phases so that you take the interests of the relevant stakeholders – the shareholders, the management, and the candidates themselves – into account.

SourceHarvard Business Review

Conducting a disciplined search involving multiple candidates, even if there is preference given to family members and internal talent over external executives, will lend a sense of professionalism to the process and allow your chosen candidate to be perceived as legitimate when he lands the role.

And whenever someone steps into a leadership role, make sure you formalise the relationship with the proper legal documents. The appointment of a director will require a Director’s Service Agreement, which lays out the rights and obligations that the individual has as a director, above and beyond the rights and obligations he has as an employee. If a senior family member is stepping out of an active day-to-day management role into an advisory role, you may wish to have in place a Non-executive Director’s Letter of Appointment. Alternatively, you can use a Founder Advisor Standard Template (FAST) under which you give the individual the right to receive shares in the future instead of cash compensation. This will lay the foundation for a mutually rewarding relationship between the business and the advisor.

4. Maintain proper documentation and record-keeping

While it is easy to slip into an arrangement where family members run the business based on mutual understanding and unwritten practices, proper documentation and record-keeping is the mark of a professionally-run business. In particular, you should maintain proper records when it comes to business information, financial transactions, and legal documents.

The Dragon Law web app helps you optimise the process for maintaining proper records and organising your legal documents. With over 200 documents in our document library and a cloud-based storage system where you can store your documents, invite contracting parties to e-sign, and grant access to select employees in your organisation, you will have your legal documentation all in one place, ready to be passed on to the next generation when the time comes.

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Do you have any tips for how to prime a family business for long-term sustainability?

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4 platforms to source freelancers in New Zealand & Australia

Much has been written about the gig economy in recent years. According to a report by the Australian Industry Group (Ai Group) published in August 2016, 32% of the Australian workforce had freelanced between 2014-15. The Australian platform Freelancer.com grew its user base from one million to ten million between 2009 and 2014. With a growing interest in freelancing due to the increasing demand for flexible and autonomous work and the emergence of digital talent platforms that link workers and employers, the gig economy is very much tilted in favour of the client at the moment.

Yet, companies looking to hire freelancers also risk facing certain challenges in hiring freelancers, such as a tedious process to select the right freelancer, unpredictable work quality of the freelancers, and misalignment of expectations between the company and freelancer. If you are looking for guidance on how to kickstart the process of looking for a freelancer, check out our tips for how to select the right freelancer for the job . A rigorous process of shortlisting and testing freelancer candidates will maximise your chances of hiring a freelancer that fulfils the demands of your job to a tee.

Related reading: The Entrepreneur’s Guide to Setting Up a Business in Australia

SourceUpwork

In addition, online talent platforms that facilitate the process of matching freelancers with clients promise to simplify the process for clients. The process of working with a freelancer typically involves the following steps: posting the project on the platform, receiving quotes, hiring a freelancer, receiving the work, and making payment. However, there are variations between the different platforms in their approach towards matching freelancers with companies. It is thus important to think about the following factors when you are deciding on a platform through which to engage a freelancer:

  • Background of freelancers: Some platforms pride themselves on the fact that they have a global reach while others specialise in connecting you with freelancers from a certain country or region. The latter may be valuable if you are hiring for a project that requires cultural-specific knowledge;
  • Categories of skills: Some platforms focus on freelancers with marketing and advertising skills (e.g. graphic designers) while others offer freelancers with programming skills;
  • Pricing model: Most platforms either take a commission (i.e. a percentage of the amount that is paid to the freelancer) or charge a fee for posting a project or job advertisement;
  • Payment system: Some platforms provide a milestone payment system, with payment made via the platform, while others merely match the freelancer with the company and do not involve themselves in the payment process;
  • Role of platform: Some platforms adopt a hands-on approach, for instance in terms of screening potential candidates and providing you a shortlist and facilitating resolution of potential disputes that may arise, while others may adopt a more hands-off approach, with much of the interaction to take place at the discretion of the company and the freelancer.

Here, we give you the lowdown on four online platforms that promise to connect you with the right freelancer for your job:

1. Freelancer

The Australian public company Freelancer.com prides itself on being the “world’s largest freelancing and crowdsourcing marketplace” that connecting employers and freelancers globally from over 247 countries. The freelancers on the platform come from “every technical, professional and creative field” and payment can be made based on fixed price or hourly terms. When you post a project, you can specify your schedule, cost range and milestones.

Posting a project is free, and Freelancer.com operates on a Milestone Payment system where you release payments according to a schedule of goals you set or pay only on completion. Freelancer.com charges the client a small project fee relative to the value of the selected bid as an introduction fee. The cost and and how this fee is charged depends on the type of project: a fee of 3% of $3.00 USD (whichever is greater) for fixed price projects; or a fee of 3% for hourly projects. You can track your freelancer’s progress via the Desktop App while the mobile app allows for messaging on the go to facilitate communication with your freelancer.

2. Upwork

Upwork also boasts a pool of freelancers from a diverse range of industries and skillsets, as well as a specific section for freelancers in Australia. When you post a job, Upwork will analyse your needs and send you a shortlist of likely candidates. If you pay for a higher level of service in the form of Upwork Pro or Upwork Enterprise , Upwork will do more for your, such as personally handpick pre-vetted talent to meet your specific needs.

You can pay by hour or pay a fixed price for entire project. For fixed price jobs, make use of Upwork’s licensed escrow service to release funds as pre-set milestones are met. Upwork Payment Protection ensures that you only pay for work you authorise. Most payments subject to a 2.75% processing fee.

3. Yudoozy

Yudoozy operates on a slightly different business model from the earlier two platforms in that it requires employers to pay a monthly subscription as opposed to collecting a percentage per hire or from an hourly rate. Ranging from a monthly NZD 29 fee for start-ups to a one-off NZD 99 fee for the Flexi plan which gives you two weeks’ access to cater to seasonal recruiting, the subscription fee gives you unlimited access to all contractors and freelancers on the platform.

You’ll be able to browse the freelancers’ availability, hourly rate, skills, and most remarkably, their contact details. This is because Yudoozy positions itself as a database of available talent rather than a contractor management platform per se, thereby giving you much more flexibility in dealing with the freelancer.

While Yudoozy tends to be more freelancer-friendly, the advantage is that it provides local talent in New Zealand. This is perfect for projects which require an understanding of a specific cultural context, such as a marketing campaign which necessitates awareness of the cultural norms of the target audience.

4. OzLance

In the same way the Yudoozy focuses on freelance talent based in New Zealand, OzLance provides local talent based in Australia and New Zealand . It costs AUD 7 to post a project or job. OzLance requires that you pay per project as opposed to on an hourly basis. While the pool of available talent is currently limited to writers, translators, mobile application developers and programmers, designers and network administrators, OzLance is looking to expand further into online marketing, IT and administrative services.

In cases where the talent platform is more hands-off about establishing and maintaining the client-freelancer relationship, it is crucial that you take the initiative to put the important legal documentation into place. As freelancers are independent contractors rather than an employee, you will need a Consultancy Agreement (sometimes known as a Freelance Agreement) that sets out the scope of the work that the consultant will provide and protects your business by letting the consultant know the extent of his powers and responsibilities.

Ultimately, although the process of selecting a freelancer for a short-term project might be time-consuming, there are numerous benefits to be reaped from working with a freelancer, including access to a wider pool of skill sets and talent and lower costs than hiring a full-time employee.

Claim your free trial. Start drafting legal documents with Dragon Law today.

What were your hits and misses with using online talent platforms to hire a freelancer for a job?

Share with us in the comments below!

 

5 Business Tasks to Catch Up Over the Long Weekend in Singapore

April 30, 2017

Anyone running a business knows it’s hard to put some time aside to catch up and consolidate on the items on your never-ending list of to-dos’. Bank holiday long weekends provide an important time to sit back, relax and enjoy some time off with your friends, family or maybe even just to catch on the book you’ve been trying to finish since the Christmas holidays. They also give you an opportunity to take stock of your business activities as we approach the end of the first quarter.

Below, we offer some simple tasks that you can tackle in your own time, whether between sips of your cocktail, laps in the pool, or chapters of your book.

1. Check that your employment agreements are up to date

Employment agreements are strongly recommended for every employee in your organization. These agreements create accountability and set expectations in the day to day working environment, as well as, defining the legal relationship between you and your employee.

It is crucial that every employee has signed a contract before commencing their working period. This should be part of your employee onboarding process, as it will help you to avoid any legal issues in the future.

In addition, if any of your employees have changed departments or positions within your business, it is your responsibility to update their employee agreement, reflecting the changes in order to avoid any confusion and account for any new KPIs or legal obligations.

Recently, there have been changes made to employment laws in Singapore. It is now an obligation for every employer to issue itemised payslips to their employees covered by the employment act.

When drafting an Itemised Pay Slip, it is important for you to focus on the following:

  • Start and end date of the salary period covered by the pay slip:
  • Date of payment;
  • Amount of payments e.g. basic salary, allowances (including all fixed allowances such as transport, and ad-hoc allowances such as a one-off uniform allowance), overtime pay (set out details including the number of overtime hours worked), and other additional payments (e.g. bonuses, rest day pay, public holiday pay)

2. Shareholders Agreement

Shareholder Agreements are fundamental in establishing the relationships between the shareholders of the company, as well as stating how the business and activities of your company are run. The agreement should mention the shareholders rights and obligations and define the decision making process.

In most cases, businesses create shareholder agreements when they first incorporate their organization and then never go through it again. However, there are many scenarios where the agreement has to be changed or updated:

  • In case the organization found new investors, it is your responsibility to update the old shareholders agreement
  • If you as a shareholder have issued shares to any of your employees (through an ESOP), the shareholder agreement should be updated.

In some cases, businesses will have never create a shareholder agreement in the first place. In this case, it is strongly recommended that companies with more than one shareholder put an agreement in place as soon as possible to avoid any legal issues in the future.

Recently, there have been several changes made to the Singapore Companies Act aiming to improve the transparency of ownership and control of the companies. You should be aware of the following changes:

  • Every local and foreign company has to be registered in order to maintain control;
  • Foreign companies are obliged to maintain public registers of their members;
  • Singapore incorporated companies are required to maintain a register of nominee directors;
  • Requirement for records of wound up companies to be retained for five years instead of two years;
  • For more more information on the changes to the Company Act, you can read a helpful summary provided by our friends at Stephenson Harwood.

    3. Consolidate your business relationships

    Commercial relationships with other organizations are crucial for the day to day activities of any company. This is the reason why agreements have to be established in order to avoid any unfair treatment from any of the parties.

    An example of one such agreement is the Supply of Services Agreement. This is a contract between the supplier and customer with the aim of providing a specific service. This agreement is necessary for establishing the processes and standards that should be met when receiving the service. It is your responsibility to update the service agreement because in many cases the commercial relationship will morph and change over the course of the business relationship.

    4. Tax time for your employees

    Individuals or organizations that are eligible for tax payments are required to complete and send the tax return back to the Inland Revenue Department within one month from the issue date. Tax payments vary depending on the structure of the company, as well as, the income level of the organizations.

    If your employees receive any return from the IRD, they are required to complete and send it back on time. Don’t get caught out – there are many cases where individuals or organisations do not pay taxes on time – this can lead to extra penalty payments or even prosecution.

    5. End of the month accounting reporting

    It is highly recommended for every organization to carry on an end of month accounting procedure. This is crucial in ensuring that all of the financial records are balanced before commencing the new month. These duties are mainly taken care by the bookkeeper or CFO of the organization.
    There are three major steps that have to be followed in order to successfully develop an end of month book:

    • Adjustments
    • Calculations
    • Reporting

    Claim your free trial. Start drafting legal documents with Dragon Law today.

5 Business Tasks to Catch Up Over the Long Weekend in Hong Kong

Anyone running a business knows it’s hard to put some time aside to catch up and consolidate on the items on your never-ending list of to-dos’. Bank holiday long weekends provide an important time to sit back, relax and enjoy some time off with your friends, family or maybe even just to catch on the book you’ve been trying to finish since the Christmas holidays. They also give you an opportunity to take stock of your business activities as we approach the end of the first quarter.

Below, we offer some simple tasks that you can tackle in your own time, whether between sips of your cocktail, laps in the pool, or chapters of your book.

1. Check that your employment agreements are up to date

Employment agreements are strongly recommended for every employee in your organization. These agreements create accountability and set expectations in the day to day working environment, as well as, defining the legal relationship between you and your employee.

It is crucial that every employee has signed a contract before commencing their working period. This should be part of your employee onboarding process, as it will help you to avoid any legal issues in the future.

In addition, if any of your employees have changed departments or positions within your business, it is your responsibility to update their employee agreement, reflecting the changes in order to avoid any confusion and account for any new KPIs or legal obligations.

2. Shareholders Agreement

Shareholder Agreements are fundamental in establishing the relationships between the shareholders of the company, as well as stating how the business and activities of your company are run. The agreement should mention the shareholders rights and obligations and define the decision making process.

In most cases, businesses create shareholder agreements when they first incorporate their organization and then never go through it again. However, there are many scenarios where the agreement has to be changed or updated:

  • In case the organization found new investors, it is your responsibility to update the old shareholders agreement
  • If you as a shareholder have issued shares to any of your employees (through an ESOP), the shareholder agreement should be updated.

In some cases, businesses will have never create a shareholder agreement in the first place. In this case, it is strongly recommended that companies with more than one shareholder put an agreement in place as soon as possible to avoid any legal issues in the future.

3. Consolidate your business relationships

Commercial relationships with other organizations are crucial for the day to day activities of any company. This is the reason why agreements have to be established in order to avoid any unfair treatment from any of the parties.

An example of one such agreement is the Supply of Services Agreement. This is a contract between the supplier and customer with the aim of providing a specific service. This agreement is necessary for establishing the processes and standards that should be met when receiving the service. It is your responsibility to update the service agreement because in many cases the commercial relationship will morph and change over the course of the business relationship.

4. Tax time for your employees

Individuals or organizations that are eligible for tax payments are required to complete and send the tax return back to the Inland Revenue Department within one month from the issue date. Tax payments vary depending on the structure of the company, as well as, the income level of the organizations.

If your employees receive any return from the IRD, they are required to complete and send it back on time. Don’t get caught out – there are many cases where individuals or organisations do not pay taxes on time – this can lead to extra penalty payments or even prosecution.

5. End of the month accounting reporting

It is highly recommended for every organization to carry on an end of month accounting procedure. This is crucial in ensuring that all of the financial records are balanced before commencing the new month. These duties are mainly taken care by the bookkeeper or CFO of the organization.
There are three major steps that have to be followed in order to successfully develop an end of month book:

  • Adjustments
  • Calculations
  • Reporting

Claim your free trial. Start drafting legal documents with Dragon Law today.

Calling all accountants: Use Dragon Law to grow your accounting practice

April 27, 2017

Last year, we wrote a piece on how law firms can leverage legal tech to strengthen their legal practice. This may come as no surprise, but legal isn’t the only business need that Dragon Law can help tackle. When business owners think about the legal and regulatory requirements that they need to fulfil in order to stay on the right side of the law, bookkeeping and other accounting matters come to mind.

We’ve always known legal and accounting go hand-in-hand, which is why we have been working alongside our accounting partners since we were founded back in 2013. That’s why I’m currently on tour in New Zealand, talking to accountants and accounting firms, discussing how Dragon law’s legal software can best be integrated with everyday accounting tasks.

The results are two-fold: a truly seamless legal and accounting experience for SMEs; and a powerful tool for accountants to provide a full-service cloud offering to their clients, ultimately building their practice

Here, I outline three ways in which Dragon Law can help strengthen your practice as an accounting firm:

1. Manage your own legal needs with the Dragon Law app

As an accounting practice and a small business, you will inevitably have to generate a whole host of legal documents in the course of meeting your own business needs. As a legal tech serving SMEs, we at Dragon Law understand the key challenges that this segment of the market faces.

It’s all about streamlining business processes and reducing administrative hassle to save time and cost, and focus on growing your business. With more than 200 documents in our Document Builder, there is a legal document that meets your every need.

At Dragon Law, we use our own technology to do the following:

  • Manage recruitment activity. Employment regulations frequently change and we want to stay on top of it. Use our cloud legal software to manage the creation and maintenance of customised Employment Contracts for regular employees, and Director’s Service Agreements which contains stricter provisions for confidentiality and post-termination restrictions for more senior employees.
  • Work with partners in other countries. Perhaps you want to expand your practice into the region to cater to clients with regional small businesses. With Dragon Law’s app, you can use the power of the cloud to store, share, e-sign and manage your business documents necessary to make a collaboration with a foreign partner happen.
  • Automate your most frequently used documents. As an established practice, there may be certain documents that you use day in and day out. If you already own your own template, but want to empower your managers to generate them more efficiently with minimal error, get your template automated with Dragon Law.

Start managing your legal needs with Dragon Law today.

2. Offer your clients better service by taking into account their legal needs too

Apart from your own legal needs, there is a whole group of people that would benefit from having their legal needs tackled too – your clients! Legal and accounting often go hand in hand. Keeping accurate books allows your clients to report tax obligations, price products correctly, optimise their cash flow, and maintain their bottom line. And just as your clients need to have their books done every month, the same due diligence should apply to their legal needs.

Accountants inevitably encounter this often, and Dragon Law is a great resource to be able to refer to in such situations.

Take the example of a client who looks set to run into cash flow problems. Beyond being a matter of balancing the books, drafting legal documents in a smart way can help businesses optimise their cash flow. By taking ownership of the contract drafting process when it comes to the Sale of Goods Agreement or Supply of Services Agreement, clients can create payment terms that will better align inflows with outflows and improve their cash flow.

And if your clients ask how they can draft such documents quickly and efficiently, simply point them to the relevant documents in our suite of more than 200 documents. By giving your clients better tools to address their legal needs, you will be able to provide your clients better service.

Try Dragon Law for Free. Get started.

3. Keep your accounting practice lean and efficient by storing your documents in the cloud

A common problem that accountants face is the issue of time. Keeping good accounting records demands time and diligence. Yet, accountants are all too familiar with the time crunch and resulting stress that comes around whenever filing deadlines near. As a solo practitioner or a manager of a small practice, time is the very thing that you feel you are constantly short of.

A cloud-based solution to meeting the legal needs of both your practice and your clients’ businesses can go a long way in making your firm more efficient and freeing up time for more pressing tasks. By using a cloud management system to store your documents and reducing the use of in-house technology , you can avoid maintaining multiple servers which can be costly business.

Going paperless also allows you to free up time spent on non-productive tasks like searching for documents in file cabinets, as well as reduce paper waste. Storing documents in the cloud allows everyone in the firm to access files easily and also reduces printing costs.

If you would like to get in touch to discuss how we can work together, you can contact me here.

Daniel Walker

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