Five Crucial Legal Considerations When Starting Your Business

January 15, 2019
Five Crucial Legal Considerations When Starting Your Business

Starting a business is exciting, but it can also be overwhelming knowing where to start and understanding the legal side of things. Below are five quick tips to get you started.

#1 Structure your Start-up

One of the most important things to think about when starting a business is how you will structure your start-up. The way you choose to structure your business will have a huge effect on how your start-up operates – such as the tax you pay, your personal and financial obligations, your control over the business and the licences and registrations required.

Some of the most common structures, and their advantages and disadvantages, include:

  • Sole Trader – under this structure, you trade under your own individual name.
    • Pros: cheap and easy to set up – generally all you need to do is register an ABN.
    • Cons: Personal liability is unlimited. This can be very risky if things go wrong.
  • Company – when you create a company, you are creating a separate legal entity. The entity has its own bank account, ABN and tax file number.
    • Pros: The company can make profits, incur debt, sue and be sued – all without affecting your personal position or liability (except in limited circumstances).
    • Cons: A company typically has higher set-up costs and ongoing obligations than other structures.
  • Trust – trusts can be more of a complicated structure to wrap your head around. Essentially, it involves appointing a ‘trustee’ (which can be a company or person) to hold the business assets on behalf of others, called ‘beneficiaries’, who receive a distribution of the business’ profits.
    • Pros: They may offer tax benefits compared to other structures in some circumstances.
    • Cons: Can be relatively complex to set up.

#2 Protect your Intellectual Property

Intellectual property (IP) is an idea or invention that you create, like a trade name, logo, design or brand. There are different types of IP, and how you protect it will largely depend on this type.

  • Trade marks: trade marks include names, logos or phrases. To protect a trade mark, you must register the trade mark with IP Australia. It’s important to register the trade mark in the category of goods or services that you offer, called “classes”. Once registered, you will have the exclusive right to use the trade mark in the relevant class or classes. Registering can help protect your company’s brand against competitors so that your products/services are identifiable to your customers.
  • Patents: A patent is the right to commercially exploit a new and inventive idea, like an app, machine or software. IP Australia also administers patent applications, and has strict requirements to determine whether or not a patent application will be successful. The main test is whether the invention is ‘new, inventive and useful’.
  • Copyright: copyright protects artistic and literary works – think eBooks, articles or a drawing. Unlike the other IP rights, copyright is automatic and does not need to be registered. In Australia, copyright is generally effective for the life of the author, plus 70 years

With any IP, if you find it being copied by someone else, it’s up to you to enforce your IP rights and ask the infringing party to cease and desist.

#3 Contracts, Contracts, Contracts

An area that is often missed by many start-up businesses is getting the right contracts in place. It’s important that you have clear terms and conditions which are relevant to your business to avoid confusion and headaches down the track.

If you’re running an e-commerce store, or even if your business has a website (and who doesn’t these days?), you should make sure you have website terms and conditions. These terms and conditions should cover things like:

  • The nature of any information provided on your website, like blog posts
  • Use of the website
  • Who owns the intellectual property in your website content
  • Responsibility for virus protection

If you are collecting personal information from your customers, it’s best practice to have a privacy policy in place (and in some cases, it’s compulsory to have one). Your privacy policy should outline:

  • What kind of personal information is collected
  • How it is collected
  • What the information is used for

All businesses, irrespective of the type, should also have a customer contract. This sets out your trading terms and other conditions relating to customers doing business with you, like your refund policy. For e-commerce businesses, this can often be incorporated into your website terms and conditions.

#4 Insurance

small business insurance

It is essential when starting a business to ensure you have the correct (and sufficient) insurance cover. The type of insurance required will depend on the nature and size of the business, but some of the most common ones are:

  • Professional Indemnity Insurance if your business provides professional services or you give advice to customers, professional indemnity insurance will cover you for the cost of litigation for breaches of contract, poor or incorrect advice or mistakes in providing services.
  • Public and products liability insurance – this covers you for any accidents, injuries or damage caused to third parties as a result of your negligence or from the sale of products. This insurance coverage is important for practically every business. Accidents do happen – so taking out public liability insurance gives you peace of mind for claims of personal injury or property damage.
  • Worker’s compensation – If you employ staff, then you’ll need to take out worker’s compensation (sometimes known as WorkCover). Worker’s compensation covers you and your staff in the event of a workplace injury or illness.

#5 Building your Dream Team

employee contract small business

When building your team, make sure you get an employment contract in place. This should specify the type of employment, the employee’s responsibilities, their pay and entitlements and other obligations specific to your business (such as confidentiality requirements).

You are also required by law to provide the employee with a Tax File Number Declaration, Choice of Super Form, and Fair Work Information Statement. You may also need to register for PAYG Withholding, which means you will need to withhold amounts from your employee’s pay for their tax.

Bonus tip: make sure you understand the difference between a contractor and employee. The ATO has a useful tool on its website to help you figure this out, at https://www.ato.gov.au/Calculatorsand-tools/Employee-or-contractor

About the Author

startup legal tips from marianne marchesi

For tailored legal advice, contact Marianne at [email protected] or visit www.legalite.com.au to book in a free phone consultation. You can also purchase Legalite’s Essential Start-Up Guide for more useful tips.

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