In Part 1 (page 36 – August issue), I labeled risk into five categories, namely; 1. PEOPLE, 2. MONEY, 3. LAW, 4. SERVICE and 5. ECOLOGY. I will be dealing with the risk profile of each, i.e. broadly speaking the areas of risk that any business is exposed to can been allocated under these five categories.
Each category brings different challenges to the table and if you don’t realise this, have proper contracts, systems and strategies in place, you may well be ‘caught with your pants around your ankles’ and embarrassment will be the least of your worries!
In Part2, we continue with the category of ‘People’ under four sub-categories: Staff (discussed in Part 1); Third party service providers (‘TPSP’); Business Associates and; Customers.
Third party service providers (TPSP’s). It is imperative that you bear one thing in mind: the very reputation you’ve taken years to establish, built up and polish can be destroyed in one fell swoop by the poor service or inadequate product of a TPSP! Here are a couple of things to bear in mind:
A consumer can apply the Consumer Protection Act (CPA) and not only sue the entire supply chain (without having to ‘pin point’ blame) but can rely on section 61 of the CPA to hold you absolutely liable i.e. even if you were not at fault if the provided the goods of a third party as part of your services as you will be deemed to be the supplier of the goods! All of this means it is imperative that you must ensure you have proper written, signed agreements with ALL TPSP (even your cousin!) and that these agreements must include an indemnity in your favour.
The Protection Of Personal Information (POPI) Act requires all contracts with TPSP to comply with POPI or the TPSP’s country’s equivalent – again a detailed contract and indemnity is required;
You should carry out a due diligence on all TPSP BEFORE engaging them. Here are some of the things you should investigate. (Please note that there is an extensive list and these are only a few examples:
• Insurance: cover and premiums pad?;
• Terms and conditions;
• Risk management and complaints procedure;
• Years in business, references and membership of professional bodies;
• Statutory compliance;
• Staff training and average years of service;
KPA and KPI – see above.
Business Associates. It is imperative that you and your associates discuss the future in detail, unravel expectation(s) and deliverable(s), the main cause of contractual disputes, record it in writing and sign – AND in due course and if required, do the same with any agreed changes!
Even though the ‘legal name’ for the document may differ e.g. a partnership agreement, an association agreement (for a close corporation) and a shareholders agreement or memorandum of incorporation (‘MOI’) for a company, it is at the end of the day the same thing namely a relationship agreement.
There are many aspects pertaining to employment contracts that could and should be addressed in the association agreement such as a restraint of trade and confidentiality, but more important is the holding of meetings, shareholding/interest percentage, voting, what constitutes a quorum, minority protection, etc.
It is my experience that this association agreement, or should I say the lack thereof, or often not updating it, is the root cause of most disputes between associates.
It is of course a business agreement but the lack of addressing the so called ‘soft issues’ can result in acrimony and can ruin a business – some of these issues are:
• Ways of ensuring that each person adds his/her weight i.e. avoid the scenario where one person thinks marketing is all about spending time with the (potential or otherwise) clients on the golf course;
• Question how and where each person is going to add value;
• Carry out a due diligence on potential associates;
• Do you both/all have the same vision for the business i.e. one may want to grow & sell it ASAP whereas the other may be hoping to create opportunity for his/her family; is it long term growth or short term gains?;
• Does he/she realise that there is no guarantee of success, job security, fixed hours, etc when you are an entrepreneur?;
• Ensure you have an exit policy;
• Discuss and address in the agreement what happens if one party dies, is incapacitated, etc;
Ensure you have the correct insurance e.g. business interruption, keyman insurance, etc.
Disclaimer: This article is intended to provide a brief overview of legal matters pertaining to the travel and tourism industry and is not intended as legal advice. © Adv Louis Nel, ‘Louis The Lawyer’, September 2014.