Category Archives: business law

Income Protection Insurance – sounds good in theory

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Income protection insurance is meant to protect customers by providing a tax-free income in the event that you are unable to work (because you have suffered an injury/illness). On paper, it therefore seems like a great way to protect your income in the event of any unfortunate, unforeseen circumstances in the future. The problem lies in the fact that many who have taken out this income insurance, and then find themselves unable to work, have found it virtually impossible to then make a claim.

One of the main reasons which make it so hard to successfully claim with this type of insurance is the method in which insurers assess policyholder’s ability to work. Those that took out this type of insurance on a ‘work-task’ basis means that before they will be able to make a claim, they will need to perform a series of tasks, to demonstrate to the insurance company that they really are unable to work.

The types of tasks insurance companies ask their policyholders to perform can involve using a pen/keyboard with either of their hands or with an aid, walking 200 metres on a level surface with an aid without stopping or suffering pain, or having sufficient eyesight (with aids) to read 16 point print. Many have criticised these tests, as only those are severely incapacitated would struggle to pass them. Additionally, these tests do not take into consideration an individual’s mental health, and whether they are emotionally and psychologically fit to work.

Situations therefore arise where individuals who are suffering from psychological illness/stress are unable to work, and deemed so by their GPs, and yet are unable to claim on their income insurance policies as they are still able to perform the basic, technical tasks these policies lay down. Many critics have claimed that these basic tasks should be abolished, in favour of more realistic indicators of a person’s health. Furthermore, it should be highlighted that physical and psychological illness are two very different types of health concerns, and should not just be lumped together using a test for both. Psychological illness requires a much more delicate, emotionally focused type of testing, and the nature of the tasks asked by insurance companies to policy holders should reflect that.

At the moment, insurance companies may attempt to justify their work task based method by claiming that it prevents a number of fraudulent claims, preventing a misuse of the system. Instead, this seems to be a thin smoke screen by which companies can ensure they pay out only minimal claims to the few that cannot pass the basic tests. For those policyholders that have been regularly paying their premiums in an attempt to be risk averse and secure their futures, this seems like a kick in the teeth when they are prevented from claiming because they can pass a test which requires them to read 16 point writing.

It is therefore advisable that people with income protection insurance review their policies to find out on what grounds they can make a claim should they need to. If they discover that their policies are on a work-task basis, they should consider switching policies where they will be getting a fairer policy for their money.

Data Protection Act 1988

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The Data Protection Act 1998 was passed by Parliament in an attempt to control the way information is handled and stored, giving legal rights to individuals who have personal information stored on computers and in paper databases by other people/organisations and the government.

How Does the Act Protect my Data?

The Act incorporates 8 ‘data protection principles’, which require any institution, whether it be governmental or private, that collects an individual’s personal information, to keep that information safe.

Principle 1: Processing Data Fairly and Lawfully

This is one of the eight principles which are at the heart of data protection. The main goal is to ensure that the individual’s data which is being processed is protected.

Under this principle, you must possess legal grounds for gathering and handling personal data. You must ensure you use this data only in a lawful manner, and prevent data use which may have negative effects on the individual whose data it is, which are completely unjustified. You must also be transparent as to how you are going to utilize the data which is collected. Additionally, you must make sure you only handle an individual’s personal data in a way which is reasonably expected.

Principle 2: Processing Personal Data for Specified Purposes

This principle ensures that organisations must give clear reasons behind why they are collecting your personal data.

Principle 3: The Amount of Personal Data that can be Held

Organisations must ensure that the personal information they hold on individuals is sufficient for the purpose it is being held. Additionally, organisations should not hold additional information than is necessary for the stated purpose.

Principle 4: Keeping Personal Data Accurate and Current

Although the Act realises it is impossible to re-check all pieces of personal information, it does place a duty on organisations to take reasonable steps in checking the accuracy of personal data they have collected. Organisations should ensure that the source of the data is clear, and that they consider whether they need to update data, or consider challenges to a piece of information’s accuracy.

Principle 5: Retaining Personal Data

This principle states that there is no set maximum time limit that an organisation can store personal data. Instead, an organisation cannot hold personal data for longer than is necessary for it to fulfil its stated purpose. Another information that needs to be deleted/disposed of should be done so securely.

Principle 6: Individuals’ Rights

This principle provides individuals with a right to access the information organisations hold on them, and also object to the processing of any information which may be distressing/damaging. Individuals also have the right to stop information used for direct marketing, and a right to challenge an automated machine making decisions in relation to their personal data.

Individuals have the right to pursue damages from any organisation which is in breach of this Act.

Principle 7: Information Security

The measures which are appropriate to securing information will vary depending on the type of organisation and its circumstances. Organisations should therefore use a risk-based approach in deciding what level of security the organisation needs.

Principle 8: Sending Personal Data Outside the European Economic Area

This principle states that personal data shall not be transferred outside the European Economic Area. The only exception is where that territory/country can ensure a sufficient height of security for the data.

How Can I Find Out What Information Organisations Hold about Me?

You have the right to find out what information organisations and the government holds on you. All you need to do in order to find out what this information is is submit your request in writing. Once the organisation receives this request, they are legally obliged to provide you with the information they hold.

Do be aware of the fact that some organisations may charge a fee for providing this information. They are not allowed to charge a fee higher than £10 for digital information, or a fee higher than £50 for paper medical records. If you would like to find out what information credit agencies hold on you, this can be done online (normally for a fee of £2).

Succession planning

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Succession planning is a process for identifying and developing people, within an organisation,  with the potential to fill in critical business positions in the company as they become vacant. Succession planning can be either short-term or long-term and usually involves internal and external training and development programmes. Succession planning ensures that the company can further progress by being efficiently managed and quickly adaptable to any organisational changes that may be prompted by changing market realities.  A carefully planned succession strategy minimises risks of business management failure and ensures that people with the right skills are always available to fill in the positions of responsibility and drive the business forwards.

Succession Planning vs Replacement Planning

Many people confuse succession planning with replacement planning. Both of the terms should not be used interchangeably as they have some fundamental differences.

Replacement planning relies on the assumption that internal organisation structures will remain unchanged in future. Based on that assumption, a strategy is put in place to identify potential replacement candidates for critical positions that may become available soon. It is standard for human resources departments to have three alternative candidates, with various levels of experience, for each position available.

By contrast, succession planning focuses on building a ‘talent pool’ from which selections can be made as the positions become available. Many leaders prefer this, as a more viable long-term sustainability commercial option, than simple replacement strategy. The main idea behind succession planning is to have a wide selection of candidates for each position available. This way a company can better adapt to dynamically changing markets by creating new positions as well as replacing old.

What to consider when developing a succession plan?

Research provided by Randolph M. Kessler proves that identification of clear goals is crucial to efficient succession strategy planning. In practice most of the following human capital investment objectives are core to modern businesses that have well-developed business processes:

  • Identification of individuals who are capable of greater responsibility assumption;
  • Provision of sufficient development opportunities and training programmes to ensure that the most promising candidates further develop their skills;
  • Ensuring that experienced managers and leaders provide support to the selected people and pass their knowledge onto younger talent;
  • Ensuring that proper human resources reports are kept and compiled to improve selection processes.

A good succession programme also ensures that improvements are made for existing employees. Commitment and retention can be achieved by meeting the existing personnel’s professional expectations and ambitions. A good management of existing human capital will ensure that in long-term the company not also has strong management but also devoted human capital.

Tailoring the succession plan

There is no universal succession plan and every strategy should be developed in view of particular business and market conditions. For instance, a family run business will require a totally different strategy from multinational corporation. To be successful, your succession plan must form a part of your overall business strategy and risk profile. To give you an example:

The head of administration, in an advertising agency business, is a good leader who meets tight deadlines and has clear potential to become a vice president of the company. His past professional background has always revolved around administrative and project management positions. Optimally, he should gain a little bit more of sales experience and networking skills, to be better prepared for leading the company and bringing in more high profile work. The company recognises that need and his career progression development plan is includes a future move to sales department. If the company is keen to take a bit of a risk and put a person with relatively low experience in charge of the whole department, the plan may work very well and create a future leader with very broad professional experience. However, many companies are reluctant to do so and therefore have to spend more on external recruitment.

Business partnerships

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Business Partnership

What is a partnership?

A partnership is one of the legal structures for forming a business and is an alternative to a sole trader or a limited company. There are different types of business partnerships: ordinary partnerships and limited liability partnerships. All partnerships have some similarities in that they will contain two or more partners (either as individuals or their businesses) who share the profits of the business as well as sharing duties and responsibilities. Businesses that are usually run as partnerships include: doctors, dentists and solicitors.

The partnership agreement

Most partnerships are governed by a “partnership agreement”, which is the contractual relationship between the partners of the business. In the absence of a partnership agreement, the business will be governed by the Partnership Act 1890. It is recommended that parties entering into a business partnership draw up a partnership agreement because the Partnership Act 1890 is a very old piece of legislation and does not protect against every possible outcome. For example, under the Partnership Act 1890, if one of the partners dies or retires the partnership is automatically dissolved.

A partnership agreement will allow you to depart from any of the terms of the Partnership Act 1890 and will help to avoid potential disputes. The partnership agreement should state things like how much each partner is contributing, how they will share profits, what their roles are going to be, what to do when a partner wants to leave, how to dissolve the partnership, how to admit new partners and how decisions will be made. If a partnership agreement is entered into then each partner should obtain separate legal advice.

Partnership rules for an ordinary partnership

There are no formalities for creating an ordinary partnership ie not a limited liability partnership; it simply requires two or more people “carrying on a business in common with a view of profit”. However there are some formalities regarding how the business conducts itself, for example, the names of the partners should be displayed to the public, such as on their website and letterheads.

Advantages and disadvantages of ordinary partnership

An advantage of a business partnership is the accounting and tax structure. Business accounts are not public records and partners complete their own annual tax returns like any other self employed person.

 A major potential disadvantage of a business partnership is that partners are joint and severally liable for the business debts. This means that in the event of a partnership insolvency situation, creditors can come after each partner’s individual assets to pay off any outstanding debt, even if the debts have been caused by one of the other partners. Essentially, according to J E Baring, specialist insolvency lawyers,  there is no protection for the partners should the business fail. Even a partner who has left the business can still be held accountable for the business if there is an issue surrounding something that occurred during their tenure.

 

Limited Liability Partnership (LLP)

A s seen above an ordinary partnership does not have many rules and is largely governed by the partnership agreement. However, limited liability partnerships have additional legal requirements.

A limited liability partnership (LLP) is more like a limited company in comparison to an ordinary partnership. LLP’s require at least two designated members who carry extra responsibility. If at any time there are less than two designated members then every member is deemed to be a designated member. LLP’s must also register with Companies House and they must file their accounts, which other partnership types do not have to do.

A key advantage of an LLP is that the partners’ liability is limited to the amount of money they have invested in the business along with any personal guarantees they have given, therefore they have more protection than ordinary partnerships.  The LLP is an entirely separate legal entity from the partners as individuals.

Some businesses have “sleeping partners” who make financial contributions to the business but have no involvement with its day to day running.

Additional resource for partnership law.