Legal considerations when downsizing your company

On Behalf of | May 24, 2023 | BUSINESS & COMMERCIAL LAW - Business Formation & Planning

You’ve run a successful company for some time now and are always looking for ways to develop. Often, progress is associated with expansion, but this isn’t always the case. Sometimes, downsizing a business can actually make it more profitable. For instance, by downsizing your company you may be able to increase efficiency and reduce your overhead.

Nonetheless, when downsizing, you need to ensure that everything remains above board legally. Outlined below are a few important factors to consider.

Can you honor your contracts?

Your company has a stellar reputation and you have a number of repeat customers. This is largely because you are trustworthy and always honor your agreements. Could downsizing the business impact this reality? Before taking steps to downsize the company, you’ll need to make sure that you can first honor all outstanding agreements. If you downsize when the demands placed on your company are still high, you could find yourself unable to fulfill your end of the deal with clients.

Have you been open with your team?

Part of the downsizing process often involves terminating employees. This is not something that should be announced suddenly. It’s important to communicate openly with employees about your plans and the reasons why. This gives them time to find work elsewhere if needed. It’s possible that the employment contracts with your workers contain provisions relating to notice periods as well, which is something that all parties need to honor.

Downsizing can be a positive move for your business, as long as the appropriate steps are taken. Seeking legal guidance throughout the process will help to ensure that you adhere to all relevant rules and regulations.