Solid Starts & Finishing WellLegal Tips for Start-Ups & Entrepreneurs
Legal Tips Decide on your set-up Plan your exit strategy Document all agreements in writing Spell out your terms and conditions Ensure you meet all licensing & regulatory requirements Protect your intellectual property Ensure you are aware of consumer rights Don’t run foul of competition issues Keep proper records Get appropriate advice early
1. What’s the set-up? Consider how you wish to structure your business. This is your foundation. Common structures and their features include: Company: Separate legal entity, limited liability, tax effects, filing requirements? Who are the shareholders – can they transfer shares? Who are the directors? Director’s guarantee? Reduced Control? Partnership: Joint and several liability. Inexpensive. Who does what? Taxed in your hands. Risk to property in your name? Changes of ownership? Reduced Control? Sole-proprietorship: Personal liability. Inexpensive. Difficult to raise capital? Taxed in your hands. Risk to property in your name? Control. Trust: Can limit liability depending on trustee. Expensive. Control? Difficult to exit? Cannot distribute losses only profits.
1. What’s the set-up? What’s your business name? Check if it has been registered Is it misleading or deceptive? Passing off? Doesn’t automatically give you a trademark Doesn’t stop someone else from registering a similar name. Doesn’t give you the exclusive right to use the name or a part of it Doesn’t stop someone who has registered it as a trademark from using the name. Doesn’t give you the exclusive right to a domain name. Not necessarily the same as a trading name Domain names, purchased SEO terms can be misleading or deceptive as well.
2. What’s the exit strategy? Consider what happens if you need to exit for a variety of reasons: Selling out Reputational reasons Change in direction Irreconcilable differences Changed character of partnership / shareholding How do you resolve disputes? Are you happy to work with a successor / family of a shareholder? Documenting the shareholder/partnership agreement in painful detail in the beginning saves trauma at the end
3. Put everything in writing Always agree in writing. “Everything” means everything. Trust is overrated. Faith and belief are for Sundays. Did you agree to the same thing as your partners / investors / suppliers / customers? Don’t get a Toy Yoda when you expect a Toyota.
3. Put everything in writing Read the fine print. That’s usually where the important clauses are – and it could cost you. Consider Gamestation UK’s somewhat onerous terms:
3. Put everything in writing Get your documents right. This assists in scalability, accuracy, operational efficiency, billing and receiving payment, and is more professional.
3. Put everything in writing Know your contractual rights and obligations. If you don’t know, seek advice. Are there conditions precedent? Are there representations and warranties? Is there express or implied reliance on the acts of a third party to the contract? What’s the difference (if any) between “best endeavours”, “best commercial endeavours” and “all reasonable endeavours”? What about “take all steps” and “take all reasonable steps”? What are the service levels and standard of performance? Is there a limit to liability? Are there liquidated damages? Is it enforceable or a penalty? What happens on termination?
4. Spell out your terms and conditions Define your terms of supply: Are your payment terms pre-payment / immediate / 30 days / 60 days or a combination? What’s included in the supply? How will you supply? When is supply complete? Deal at arm’s length. Avoid personal guarantees where possible Avoid warranties and representations where possible Ensure you have the right non-disclosure agreements in place Non-compete clauses Confidentiality clauses Who gets paid, when and how?
5. Play by the rules – licensing & regulations Ensure you can sell what you’re selling. Do you have the appropriate qualifications and licenses? Ensure you are selling correctly. Are you dealing in personal data? (Privacy) Are you creating software based on a non-commercial licence? (Licensing) Are you working in a highly regulated area like credit, broking, financing, telecommunications, debt collection? (Regulatory issues) Are you a franchisee or a franchisor? (Licensing, Contractual issues) Are you selling a consumer product? (Consumer issues, safety issues) Consider: Uber.
6. Protect your Intellectual Property There are four main types of intellectual property rights of relevance to small & medium enterprises: Copyright (Works including text, maps, databases, arrangements) Trademarks (Images, sounds, smells) Patents (Inventions) Registered Designs (Designs that have a commercial or industrial application) Generally, IP rights do not protect the idea. They protect the expression of the idea. Copyright is automatic, but the other IP rights should be registered to ensure exclusivity. Breach of IP rights can be expensive. The same acts that breach IP rights may also be the subject of a claim for misleading or deceptive conduct under the Australian Consumer Law.
6. Protect your Intellectual Property Protect your IP (it forms part of your business’s assets, and may be the main asset) via: Registering / asserting your rights Ensuring contracts preserve your IP rights Non-disclosure / confidentiality agreements Ensuring partnership / shareholder / employee contracts clearly state IP ownership: who owns what is brought into the business, and what is created within the business? Use other people’s IP properly: What licence do you have? What is “non-commercial use”? Do you want to have to credit ‘hothacka75’ for the use of code? Shareware / Freeware / API standards? Sharing on social media – e.g. Facebook auto-display of images in links Hyperlinking vs Deep-Linking
7. Be aware of Consumer Rights The Competition and Consumer Act 2010 grants the main consumer protections in Australia. Be aware of what constitutes: Misleading or deceptive conduct Unconscionable conduct Unfair contract terms Unfair sales techniques Consumers in Australia have the benefit of: Consumer guarantees Safety standards Public enforcement and private remedies Lawyers love claims for “misleading or deceptive conduct” – very broad, covers any commercial enterprise and activity. Consider effects of purchasing SEO terms such as the “best broker in Melbourne”, “best free app” or a competitor’s name.
8. Avoid Anti-competitive behaviour The Competition and Consumer Act 2010 prohibits certain types of anti-competitive behaviour including: Anti-competitive agreements Exclusive dealing & Third Line Forcing Misuse of Market Power Predatory pricing Price signalling Unconscionable conduct. Consider the following scenarios: Business A will only provide the consumer with widgets if the consumer also purchases doo-hickeys from Business B. Business A will only provide a discount if the consumer spends $X with Business B. Businesses A and B control the market and agree to only provide widgets at a price of $X.
9. Keep accurate records No one enjoys paperwork – but get used to it. Keep accurate and complete records for legal, tax and administrative reasons. Minimum document retention periods may apply, especially if you are running a company. Ensure your records are accessible.
10. Get appropriate advice – early. Don’t neglect to speak to your accountant, lawyer and insurer. Choose your advisors well – do they understand your business, your operating environment and your plans? Choosing an advisor is like choosing a partner – take the time to determine if you can work well with them. Listen to, and consider their advice. You are paying them for their professional opinion. This doesn’t mean always doing what they recommend, as you are in charge of risk-taking, but keep an open mind and consider the options carefully.
Contact Details Jared Pereira Principal Solicitor Pivot Business Lawyers [email protected] www.pivotlegal.com.au 0435 177 345 Copyright 2015 Pivot Business Lawyers ABN 58 611 276 813. This presentation has been provided for general information only, and should not be relied on as legal advice. You should seek independent legal advice in respect of your personal circumstances