In Short
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Choose the right business structure early to manage risk and meet legal obligations.
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Register your business, secure food licences, and comply with health and safety laws.
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Use clear contracts and protect your brand with intellectual property registration.
Tips for Businesses
Sort your legal foundations from day one. Register your company properly, have contracts in place with suppliers and delivery staff, and protect your name and logo with trademarks. Don’t forget to check all food safety and licensing requirements to stay compliant and avoid costly setbacks.
In the rapidly evolving landscape of food delivery services, startups face a myriad of legal challenges, a few of which are relevant to both food delivery startups and businesses generally, including:
In the rapidly evolving landscape of food delivery services, startups face a myriad of legal challenges, a few of which are relevant to both food delivery startups and businesses generally, including:
- business structuring;
- company incorporation; and
- intellectual property.
After proving your startup’s success in your home country, you may be thinking about the next step for growth — expanding overseas.
This free guide aims to introduce startup founders to the Australian startup market.
Business Structure and Registration
The first crucial decision for any food delivery startup is selecting the appropriate business structure. In Australia, the most common options are:
- sole trader;
- partnership; and
- company.
For many startups in this sector, forming a company, specifically a proprietary limited company, offers significant advantages.
A proprietary limited company provides personal asset protection for shareholders, as their liability is generally limited to their investment in the company. This structure also offers tax benefits and enhances credibility with potential investors and partners. However, it comes with increased regulatory obligations, including compliance with the Corporations Act 2001 (the Corporations Act).
To establish a company, founders must register with the Australian Securities and Investments Commission (ASIC). This process involves choosing:
- a unique company name;
- appointing directors and a company secretary;
- deciding on the share structure; and
- creating a constitution or adopting the replaceable rules provided in the Corporations Act.
It’s crucial to understand the legal obligations of company directors under Australian law. Directors have duties including:
- acting in good faith;
- exercising care and diligence; and
- avoiding conflicts of interest.
Breaching these duties can result in personal liability, highlighting the importance of understanding and fulfilling these responsibilities.
Shareholders Agreement
For startups with multiple founders or investors, a well-drafted shareholders’ agreement is essential. This document outlines:
- the rights and obligations of shareholders;
- decision-making processes; and
- procedures for resolving disputes.
Key areas to address include:
- share transfer restrictions;
- pre-emptive rights on the issue and transfer of shares;
- drag-along and tag-along provisions; and
- mechanisms for valuing shares.
A comprehensive shareholders’ agreement can prevent future conflicts and provide clarity on crucial issues such as:
- exit strategies;
- capital raising; and
- management decisions.
It’s advisable to have this agreement in place early, ideally before the company starts operations or takes on external investment.
Continue reading this article below the formCapital Raising and Compliance
As food delivery startups often require significant capital to scale, understanding the legal framework for raising funds is crucial. The Corporations Act regulates how companies can raise capital, including restrictions on public offers of securities.
For many startups, initial funding may come from friends, family, or angel investors. As the company grows, it may seek venture capital or consider crowdfunding. Each funding method has specific legal requirements and implications. For instance, equity crowdfunding in Australia is subject to regulations under the Corporations Amendment (Crowd-sourced Funding) Act 2017.
In recent years, Simple Agreements for Future Equity (SAFEs) have gained popularity among Australian startups as an alternative to convertible notes for early-stage funding. SAFEs offer a streamlined approach to raising capital, allowing startups to defer valuation discussions until a future funding round. Under a SAFE, investors provide funds in exchange for the right to receive equity in the company at a later date, typically when a priced equity round occurs. It’s crucial to clearly define:
- the trigger events for conversion;
- the valuation cap; and/or
- discount rate (which will determine the conversion price); and
- any specific rights granted to SAFE holders.
When issuing shares or other securities (including SAFEs), startups must comply with disclosure requirements. While small-scale offerings (less than $2 million raised from up to 20 investors in 12 months) may be exempt from formal disclosure documents, it’s crucial to provide accurate information to potential investors to avoid misleading or deceptive conduct claims.
Intellectual Property Protection
Protecting intellectual property (IP) is crucial in the competitive food delivery market. It’s important to ensure that all IP developed for the company is properly assigned to and owned by the company. This includes:
- software;
- algorithms;
- branding elements; and
- any innovative business processes.
Employee and contractor agreements should include clear IP assignment clauses, again ensuring any IP developed by such people is owned by the company. For startups collaborating with external developers or consultants, work-for-hire agreements or specific IP transfer documents may be necessary.
Contracts and Partner Agreements
Food delivery startups rely on a network of partnerships with restaurants, delivery personnel, and technology providers. For a food-delivery startup where there will often be several parties involved, many of which will be contractors, it’s crucial to have well-drafted contracts that clearly define the rights and obligations of all parties.
For agreements with restaurants, key considerations include:
- commission structures;
- quality control measures; and
- liability allocation.
Contracts with delivery personnel must carefully navigate the distinction between employees and independent contractors, a particularly contentious issue in the gig economy.
Key Takeaways
From choosing the proper business structure and protecting intellectual property to ensuring compliance with capital raising regulations, startups can build a solid legal foundation. This not only helps in mitigating risks but also positions the company for sustainable growth and potential future transactions in this dynamic market.
Food delivery startups in Australia must carefully choose their business structure, with proprietary limited companies offering asset protection and credibility. Key legal priorities include:
- drafting a shareholders’ agreement;
- complying with capital raising laws;
- protecting intellectual property; and
- ensuring clear contracts with partners and delivery personnel.
By getting these right early, you can avoid disputes and support long-term growth. If you have any questions, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
What’s the best business structure for a food delivery startup in Australia?
A proprietary limited company is often the best choice, as it offers personal asset protection, tax advantages, and credibility with investors and partners.
Do I need a shareholders’ agreement for my startup?
Yes, if there are multiple founders or investors, a shareholders’ agreement is essential. It sets out everyone’s rights and responsibilities, helping avoid disputes and confusion later.
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