Starting a business isn’t easy. You need to consider and research price modelling, the market, business development and the legals. Ultimately, legal work is an investment in the smooth running and growth of business. Below, we set out the essential legal contracts your business needs when setting up. Namely, those required for (1) your clients or customers, (2) your workers, (3) your business and (4) external parties. Although the content will differ because of the way you conduct your business and whether you sell services or goods, this article will provide you with a comprehensive starting point.
Client and Customer Legal Documents
Regardless of whether you sell goods or services, if you are operating a business, you will be establishing a legal relationship with your clients or customers, even if you do not have anything in writing! This automatic creation of a legal relationship is why you should have legal documents drafted to outline what goods or services you provide and the terms and conditions at which you provide them. This will also help ensure you develop a trusting relationship with your clients or customers, who now more than ever expect professional standards when using services or purchasing goods from businesses. The two primary client and customer legal documents are as follows:
1. Client Agreements
Client agreements are primarily used for service-based businesses including:
- Building contractors
- HR agencies
- Massage therapists
- Marketers; and
- Real estate agents.
2. Sales Terms and Conditions
This is primarily used for goods-based businesses including e-commerce stores, retail stores, and manufacturers.
Many businesses will only need one of the documents above depending on the nature of the business. However, many businesses may require a hybrid legal document that would cover both the services and goods provided. As an example if you are an online-based yoga instructor that provides digital instruction on a one-on-one basis, but also sells pre-recorded web-based video programs, your terms and conditions will likely include a mixture of terms and conditions used for goods and services.
What Should I Include in the Legal Documents?
Client Agreements and Sales Terms and Conditions should outline details of the goods or services you are providing and the manner at which you will be providing these goods or services.
Some common clauses in Client Agreements include:
- Details of the scope of work;
- Pricing and Invoicing;
- Indemnity and liability;
- Warranties and consumer guarantees; and
- Dispute resolution.
Some common clauses in Sales Terms and Conditions include:
- Product details;
- Delivery (particularly for online-based businesses or businesses that sell big-ticket items such as fridges, furniture, etc.);
- Payment terms;
- Consumer warranties and Australian Consumer Law provisions; and
- Refunds and returns.
Workers’ Legal Documents
Many businesses will start up as a one-person operation, and so the key legal documents they will need are those that focus on the clients and customers they are serving. However, if you are a business that requires employees early on, it is important to determine not only what sort of assistance you will need but also the terms and conditions at which a worker will provide their services to you.
Commonly businesses can either have workers on board as employees or contractors. If you are an employee, you may be employed on a fixed-term, permanent or casual basis. The Fair Work Act (2009) (Cth) (“Act”) governs the employment relationship and includes the National Employment Standards that ensures every employee has access to the basic entitlements. Employment law is a complex area as the Act protects employees and you are obliged to comply with your obligations as an employer – think taxes and superannuation.
An employment agreement commonly includes:
- Leave entitlements;
- Hours of work;
- Redundancy entitlements;
- Position description and
- Dismissal and probationary provisions.
Contractors differ from employees as they are not covered by the Fair Work Act, and they are typically individuals providing their services to your business, whatever that might be. Here, it’s important to note that you do need to ensure that you are genuinely using a contractor, as there are penalties involved for “sham contracting” arrangements. A sham contracting arrangement refers to a situation where you use a contractor, but the nature of their engagement is that of an employee. The terms of a Contractor’s Agreement are similar to that of a Client Agreement. However, you should provide the Agreement to your Contractor.
Your Internal Legal Documents
Internal legal documents refer to those dictating the way you operate and govern your business internally with your business partners. If you are a sole trader, it is unlikely that you will need any of these documents. The legal document you will need depends on your business structure. If you are operating your business as a partnership, you will need a partnership agreement. If you are operating as a company, the document you will need is a shareholders’ agreement. These documents are crucial to protecting you against any disputes that may arise. It also helps to ensure a process is set up for the way decisions are made and the operations of the business as a whole.
Legal Documents for External Parties
Even if you are a sole trader, it is unlikely that your business runs in isolation. There are many possible legal relationships that your business forms which you can protect through legal contracts, including:
You should cover any legal relationship that you create with an external party through the appropriate legal contract. In some cases, the legal contract is required by law, for example if you are renting premises or if you are a franchisee in a franchise.
It’s important that you think about these legal documents and understand the legal relationships you are creating whether that be with your clients, workers, internal business team or external parties. Importantly, if you have any questions, ask! You can speak with our business lawyers on 1300 544 755.