SMEs: be aware of necessary legal compliance needs to avoid costly lawsuits
The key to being a successful entrepreneur is planning. This is according to Eugene Botha, Legal Associate at Sirdar South Africa, who recently addressed SME owners at a Business Partners Limited breakfast. Botha says that understanding the legal components of a business need to form an integral part of the planning process for all entrepreneurs, as careful planning of policies will ensure that business owners avoid costly legal problems in the future.
According to Lionel Billings, Head of Consulting Services of Business Partners Limited, although legal terms may strike fear into business owners, it is necessary to be familiar with important Acts and commercial law pertaining to business practice, as it is easy for a business owner to break the law without even realising it.
“In our experience, it is extremely important for business owners to be familiar with certain laws and Acts which SMEs need to comply with. It is the responsibility of the business owner as director and shareholder to know which Acts and laws are relevant to them. It is also easier for businesses to operate within the business landscape as Government and clients are more likely to partner with SMEs which are compliant.”
Botha adds that the law should also be used as a tool to successful planning for businesses. “Entrepreneurs need to take risks in order to succeed in business and if risks are taken without the required knowledge and correct management these risks are effectively a gamble. Every business has legal requirements which need to be planned for effectively and risks which need to be covered.”
He says that pertinent Acts which business owners should familiarise themselves with include the Companies Act, Consumer Protection Act, National Credit Act, Protection of Private Information Act, Promotion of Access to Information Act, Broad-based BEE Bill and the Employment Equity Act. “These Acts will impact a business on a regular basis, and it is therefore necessary for business owners to understand them in order to avoid legal implications and costly law suits.”
Billings says that it is the business owner’s responsibility to ensure that there are consistent policies in place, and that employees are trained on these policies. “Grievance, disciplinary, sickness and equal opportunity policies are key, and should be followed precisely in order to avoid legal issues.”
Botha advises that an Act which entrepreneurs should be on top of currently is the Consumer Protection Act. “Consumers have certain rights which all businesses need to take into account when marketing and selling products directly to consumers, and be aware of the certain dangers that may exist.”
“Consumers and businesses will have to redefine their relationships, recognise a fresh equality of power and tread very carefully in navigating new ground,” says Billings.
Botha points to the National Credit Act, which he says is also key for business owners to be familiar with. “Businesses need to ensure that they have done proper credit checks, do not hand out credit recklessly and give proper notice before taking action to recover debt.”
He advises that businesses should conduct an assessment in order to establish what Acts they should be compliant with. “For instance, certain Acts and regulations only apply to businesses with a turnover of R2 million or more. Business owners need to be aware of which rules they need to comply with and which are not necessary to take into consideration.”
Billings says that businesses should also evaluate all current legal and business structures in place, applicable laws and enterprise risks which apply to the business. “Ensure that your business plan incorporates legal strategies and be sure to develop a legal implementation plan.”
“It is also important for a business to keep company secretarial and governance documents updated. It is advisable to seek assistance from legal professionals who understand the industry that your business operates in,” concludes Billings.