4 common legal issues faced by SMEs, and how they can be avoided

Every entrepreneur struggles to find enough time to complete the day’s tasks. Sales targets have to be met, issues raised by customers have to be resolved, and there are usually several administrative matters to be attended to.

Legal matters usually get very little attention from a small business owner. But there are literally dozens of laws that apply to small businesses that need to be complied with. Additionally, the authorities regularly issue amendments and new regulations. The proprietor of a small business must keep abreast of all these changes.

Awareness about the laws that impact your business can be good for your bottom line as well. What are your legal rights and obligations regarding your employees? Can you prevent a competitor from copying your successful new business process or product?

Here is a brief list of some of the legal issues that every business owner should have an understanding about.


Recovering debts from your customers

Getting paid for the services that your firm provides or the products that it sells can sometimes be difficult. Customers may delay payments or even refuse to pay.

What can you do in such a situation? If you think that you would not like to deal with the customer in the future, you could be tempted to send a legal notice.

Sometimes, this seems to be the simplest and most logical course of action.

But you should not take such a decision in haste. Experienced business owners know that there could be many reasons for non-payment. Before going down the legal path, you may want to spend a little time to understand why your payment is not forthcoming.

  • Is the customer going through genuine financial difficulties? Consider holding a meeting and arriving at a repayment plan that gives the client more time to pay.
  • A customer could stop payments because defective goods have been supplied or an adequate level of service has not been rendered.
  • Your salesperson may have made a commitment to the customer that is not being honoured. Non-payment may be a result of this.

In any event, it is always advisable to hold a discussion with your customer before you actually initiate legal action. Proceedings in Singapore’s civil courts can be both expensive and time-consuming.


Entering into watertight employment contracts


The success of a small business hinges on the efficiency and productivity of its workers. You may employ various categories of employees in an effort to minimise costs. Many firms use a mix of full-time workers, part-time staff, and casual employees to meet their organisation’s objectives.

However, remember that it is necessary to enter into a “contract of service” with those you employ. Singapore’s Ministry of Manpower has stipulated that all employers must issue “key employment terms” (KETs) in writing to their staff.

Which are the KETs to be included in your communication with your workers? Among other details, you must list the job title, main duties and responsibilities, working hours, and salary details. The government’s guidelines list 18 areas that could be included.

Employing staff places great legal responsibility on the business owner. Your employment contract should also cover the terms and conditions governing termination of employment. If you fail to follow the guidelines that have been laid down, it could lead to a legal case being filed against your company.


Protecting your firm’s intellectual property rights

Many small businesses neglect to protect their intellectual property rights (IPR) effectively. What exactly is intellectual property and how can you establish your rights over it?

IPRs fall into three broad categories:

  • Your firm could have invented a new product that is superior to those currently available in the market. The research and development team of your company could have devised a new process that works more efficiently while simultaneously reducing costs.
  • A firm’s trademark can also be protected by law. The goods that you produce could be known by a distinctive sign that your company uses. Consumers place a great deal of confidence in these trademarks and their mere presence gives them the confidence to buy the product that bears them.
    It is important that you establish your legal rights over your company’s trademark. How valuable can a trademark be? The Coca-Cola brand is reportedly worth US$73 billion. If your firm’s trademark carries significant value, you may even decide to license it or sell it.
  • The work of an author or an artist can be protected by copyright.

How do you go about establishing your rights over your intellectual property? Fortunately, Singapore has one of the most robust IPR regimes in the world. The Intellectual Property Office of Singapore provides all the details that a small business could need regarding patents, trademarks, and copyrights.

Registering your trademark is quite simple and inexpensive. The cost ranges from S$240 to S$374 per trademark.

A small business should carry out a review of its products and processes and understand whether any of them can be protected by law. Taking pre-emptive measures regarding your IPR can help you to ensure that your business remains profitable in the long-run.


Protecting your customer’s data

In the normal course, every organisation collects data about its customers. While this information can be of great use for your business, it also places a legal responsibility on your firm.

Singapore’s Personal Data Protection Commission, a statutory body established in 2013, requires every organisation to follow certain data protection obligations. For example, you can collect data from customers only with their explicit permission. A client may choose to withdraw this permission at a later date. If this happens, you are required to inform the client about the consequences of withdrawal and then comply with the request.

It is also mandatory to make reasonable security arrangements to protect your customers’ data.

How can you ensure that your systems are not hacked? What are the precautions that you can take to save yourself from expensive litigation in the event of a data leak?

Some of the measures that you can adopt include limiting personal devices at work and keeping your encryption software up-to-date.


Should you seek professional legal help?

Legal advice can be expensive. Many small businesses are hesitant about engaging a lawyer on account of the cost it involves. They usually put off contacting a lawyer till they have no other option.

However, deciding not to seek an expert’s advice may prove to be more expensive in the long run. How can you find a law firm that is both reasonably priced and effective?

You could seek the advice of your business peers and ask them for a reference. It is also a good idea to engage a lawyer who specialises in your industry or who has expertise in a particular field. If you are planning to initiate legal action for recovery of your dues from a customer, you should engage a legal firm that has experience in such matters.

When you give an assignment to a lawyer, remember to monitor the case closely. This will allow you to provide the inputs that are necessary to ensure that the legal firm has all the information that is required to address the matter at hand.


Disclaimer: The author is not a licensed law practitioner in Singapore. This article is based on the author’s personal research and understanding into the topic, and does not constitute legal advice. 

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