Top five legal pitfalls for tradie business owners
There are lots of risks when running your own business, big or small. To help tradies stay on top of their business game, Helen Kay reveals the key pitfalls every employer should watch for.
In the trades industry, where business is often conducted on-site and deals are made with a handshake, legal oversights can be costly. Commercial lawyers specialising in tradie businesses witness many owners stumble over the same hurdles.
The good news? These mistakes are preventable. So, to provide some strategies to shield your business, we’ll delve into the common legal pitfalls trade employers should look for.
- Failing to protect intellectual property
Your business’s name and logo embody your reputation and brand identity. They’re how customers recognise you and your quality work. Yet too many tradie businesses overlook the importance of intellectual property (IP) protection until it’s too late.
The simple act of registering a trademark can avoid a world of trouble. It’s an affordable and effective measure that prevents competitors from hijacking your brand. Plus, it ensures you’re not wrongly associated with inferior services that could tarnish your reputation.
A commercial lawyer can guide you through this process, helping you select the appropriate classes of goods and services and ensuring your trade name stands firm against misuse and imitation.
- Neglecting formal client contracts
In the trades, a verbal agreement is often considered as good as a signed contract. However, without a legally binding document, you’re vulnerable. We’ve seen countless tradie business owners face financial losses because they lacked properly signed contracts.
Establishing clear terms and conditions attached to client quotes can mean the difference between getting paid on time or chasing overdue accounts. Your contract should outline the scope of work, pricing, payment terms and your remedies for late payment, including the right to charge interest or recovery costs.
It’s not about distrust, it’s about ensuring respect and professionalism in your business dealings.
- Over-trusting subcontractors
Subcontractors can be a much-needed lifeline when you need to scale up labour quickly, but without a subcontractor agreement, you’re exposing your business to risk.
A well-drafted subcontractor agreement should outline each party’s obligations, workplace health and safety responsibilities, confidentiality clauses and restraints of trade to prevent poaching of clients or staff.
It should also clearly distinguish subcontractors from employees to avoid any misclassification issues that could lead to legal complications.
- Overlooking shareholder and partnership agreements
Whether you’re starting a trade business by incorporating a company with a mate or joining forces with a family member, never underestimate the potential for future disputes.
A shareholders’ agreement is a safety net that can prevent disagreements from escalating into full-blown legal battles. It should cover the appointment of directors, share transfer rules and dispute resolution procedures.
By setting these guidelines from the start, you provide a clear roadmap for navigating the complexities of business ownership together.
- Overlooking the optimal business structure from the outset
While starting as a sole trader might seem appealing due to its simplicity and initial cost savings, tradie business owners should seriously consider the long-term implications of their business structure.
Establishing yourself as a proprietary limited (Pty Ltd) company from the beginning can provide significant advantages. A Pty Ltd structure inherently offers a veil of protection for your personal assets by treating the business as a separate legal entity.
This separation is crucial not just in instances of legal action but also in maintaining clear lines between personal and business finances. Moreover, a Pty Ltd setup can offer more credibility in the eyes of clients, suppliers and financial institutions, potentially leading to better business opportunities.
It’s a proactive approach that may involve more upfront work and investment, but it paves the way for a secure and scalable future for your tradie business. Engaging with a knowledgeable commercial lawyer who can outline the benefits and assist with the incorporation process will ensure that your business is built on a solid foundation from the very beginning.
Creating a solid Legal Foundation for Your Tradie Business
Now that we’ve outlined the common legal pitfalls, what are the proactive steps you can take?
First, assess your current legal standings. Do you have the necessary contracts and agreements in place? Is your IP adequately protected? Are you operating under the most beneficial business structure? If you find gaps, don’t panic. Instead, use this as an opportunity to strengthen your business’s legal foundations.
The difference between a thriving tradie business and one that struggles can often be traced back to legal preparedness. By addressing these five key areas, you not only protect your business but also position it for growth and success.
Remember, legal protection isn’t just about defence, it’s about building a credible, professional, and sustainable business.
ABOUT HELEN KAY (Sam, I can cut whatever’s needed in this)
Helen Kay is an accomplished commercial lawyer with over two decades of expertise assisting business owners. As the founder of Rise Legal, she specialises in providing strategic and practical commercial contract solutions. In addition to helping business owners from start-up to sale with their commercial contracts, Helen also guides individuals in selling and purchasing business and assists with their setup and compliance needs. Clients can operate their businesses with the confidence that they have Helen and her team’s protection, offering a dependable legal safety net.