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Thu 26 Mar 2020 10:22 AM

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5 legal steps to fortify your business against a virus

How can a business owner protect something like Covid-19 from adversely affect business in the future?

5 legal steps to fortify your business against a virus

Bianca Gracias, Co-Founder and General Counsel, Suits & Advisors.

The World Health Organisation classified Covid-19 as a pandemic. A global pandemic that is particularly affecting SME owners in myriad ways through disruption in supply processes and businesses' rights and obligations under contracts coming under the scanner calling into question “force majeure” effects.

Business owners are still reeling in these developments as they continuously unfold largely especially because SME owners never really are prepared for the worst.

Whilst businesses are still coping with the issues that are occurring on, business does go on.

So how can one, as a business owner protect such a situation from adversely affect business in the future? 

Review existing business contracts and employee contracts

Add a well-drafted ‘force majeure’ clause to your business contracts, if you do not have one already. Appoint a good legal consultant and have all business and employee contracts carefully reviewed.

Fortification of contracts would mean addressing all the worst-case scenarios that could affect your business and providing remedies for the business to either gain compensation, pause services, or exit.

On a side note, a good legal consultant would ideally be someone who takes time out and understands your business and, of course, is cost-effective to your business.

Create a contingency plan

A contingency plan is not a ‘business continuity plan’. A contingency plan covers a business for situations like the current one when there is no revenue being generated for whatsoever reasons and the business needs to be kept afloat. Depending on the strength of the contingency plan, businesses can survive and stay afloat through situations like this for months altogether. Contingency plans usually include foreseeing alternate ways of generating and retaining incoming revenue whether you work in-person or online.

Pre-empt a contingency fund and a reserve fund

Under the Federal Law 2 of 2015 on Commercial Companies, ‘a Limited Liability Company shall set aside in every year 10% of its net profits to form a legal reserve. The partners may decide to stop such deduction if the reserve reaches half the capital.’

Limited Liability Companies should ideally be maintaining such reserve funds although the reality may be far from. The law does not specifically provide for the application of such reserve fund, however, one may assume its obvious rationale. In addition to this, businesses may opt to create a voluntary reserve or a contingency fund setting aside a small percentage of net profits every month that can come in useful for situations that adversely affect the business.

Bring out the insurance policies

Legal risks can be addressed only by having a really robust contract or a very good insurance policy in place. Apart from these two options, a business may only rely on available remedial measures if, and when adverse situations occur. Now, its that time of the year when we dust off our insurance policies, buffer them up, understand the claims’ process. Some policies one needs to be reviewing include business interruption, credit, third party/public liability, product liability, professional indemnity.

Have a business plan

A business plan creates a vision. If you don't have an objective pathway for the future of your business then you simply do not understand your own business. It is advisable to create and definitely ensure implementing this business plan for your business. This is especially valuable if you are an SME facing critical times like these. If you have a business plan in place, refer to the section that discusses force majeure situations or deals with online working strategies.

In conclusion, just remember that calamities don’t give notice before they arrive so prevention is always much better than cure. Although the current pandemic is adversely affecting many business owners and solutions are being reviewed, for future transactions or ongoing transactions, it is better to simply ‘be prepared’.

Bianca Gracias, Co-Founder and General Counsel, Suits & Advisors