Starting a business is risky, but the rewards can be great. Make sure to establish your business plan from the outset, so you have direction from day one. While sales and traction are vital to survival in your market, ensuring that all legal considerations are accounted for is equally important for your business to thrive. Here are 5 legal considerations that every new business should make:
1. What business structure should I have and why?
What business structure you choose to operate under may influence how much tax you pay, your level of liability and how much control you have over the operations of your business. Keep in mind that there are advantages and disadvantages to every structure:
Sole trader – you have personal liability for the debts of your business, and you need to report your income on your personal tax return.
Partnership – this is similar to a sole trader, but you share profits as well as losses with two more people (your partners) and are personally liable for the debts of the business.
Trust – a trust is where a third party has control of the business and the profits go to someone other than that third party known as the beneficiary.
Company – a company is a separate legal entity, and the people who control it are usually shareholders and directors of the company. As a company is a separate legal entity, it declares income and is responsible for the liabilities of the business.
2. How do I protect my business online?
If you sell products or services or run a marketplace, then you need Business Terms to address consumer law and other issues.
If you are planning on selling services or products in an online marketplace, you must have business terms and conditions that are comprehensive, easy to find and accept for visitors to your website. The terms and conditions themselves will vary depending on the products or services you are selling.
Client Agreement – If you are a business that sells services, you will benefit from having a Client Agreement in place. It establishes the terms upon which you provide a service to a client. It will address yours and your clients’ obligations and rights, but more importantly limits your liability and provide legal protection of your commercial interests.
Sales Terms and Conditions –If you focus on selling products, have a lawyer draft appropriate Sales Terms and Conditions. The terms covered by Sales Terms and Conditions will be similar to those included in the Client Agreement. Additional terms will deal with delivery, exchange and repair of goods, as well as provisions relating to compliance with the Australian Consumer Law.
Marketplace Terms and Conditions – Will your website facilitate the exchange of goods and services between visitors? Are you making a platform for a marketplace to operate? If so, Marketplace Terms and Conditions will be crucial. These are fairly complex, as they need to set out the rights and obligations of all users interacting within the marketplace.
3. Shareholders Agreement
If you and co-founder or partners are setting up a company together, it is prudent to have a Shareholders Agreement. The Shareholder Agreement can be thought of as your ‘business prenup’, as it will set out terms for the management of company profits and assets under various circumstances such as a partner leaving the business. It also details the role of individual partners including their rights and responsibilities, how the company can be wound up, and what to do in the event that one of the shareholders is no longer able or willing to participate in the operation of the company.
4. How do I hire – Employment or Contractor Agreement?
Once you begin to grow as a business, you need to hire staff. It is important to understand if these people are employees or contractors. They have different rights and entitlements, including sick leave, annual leave and superannuation. If you get this wrong, you are potentially liable legally and financially. For example if you’ve hired someone as a contractor, but they are actually an employee, then on top of what you have paid them, you can be liable for superannuation.
Once you’ve correctly categorised the new hire, you need the correct legal agreement; either an Employment Contract or a Contractor’s Agreement.
The agreement will detail the worker’s role, remuneration, entitlements, and employer obligations to their staff. If you need one of these agreements drafted, speak with an employment lawyer to ensure that the most pertinent provisions have been considered, such as restraint of trade and confidentiality.
Starting up a new business is an exciting time, but it is important that you fulfil all the necessary legal requirements and ensure that your business is adequately protected. If you’re thinking about starting a new business and would like to discuss any or all of the above issues with a LegalVision small business lawyer, just call us on 1300 544 755 or fill out the online form available on this page and we will be happy to assist you!