Commercial Law Considerations for Your Startup
Commercial law, also referred to as ‘corporate’ or ‘business’ law relates to the regulations and frameworks that govern your startup. This pertains to your rights and conduct in matters of security, finance, taxation law, trade practices and consumer law. Navigating your legal responsibilities as a founder can seem like complicated terrain which is why we’ve outlined some key commercial law considerations for your startup below.
Engaging a Commercial Lawyer
It is always in your best interest as a founder to consult a commercial lawyer as soon as possible to ensure that your startup’s foundations are efficient and that your personal liability is protected. A commercial lawyer is responsible for a variety of necessary practices and procedures including drafting clear agreements, contracts, protecting your intellectual property, and negotiating your financing terms. Having a savvy commercial lawyer on your side will give your startup an advantage. Failure to obtain good legal advice may result in your venture facing costly legal problems and fees down the track. Consulting an experienced commercial lawyer can provide your startup with confidence and peace of mind, allowing founders and directors to stay focused on their business objectives without being overburdened by complex legal issues.
An important consideration early on is your business name. Unfortunately, there is a lot of overlap between the various registrations available to businesses. Business names, company names and trading names serve different purposes to trademarks, but only trademarks provide exclusive ownership of the name. Between business names, company names, trading names and trademarks, it isn’t always clear what steps you should be taking. You can learn more about the different business names and their corresponding legal protection here.
Before you do anything else, you should consider your startup’s business structure. Consulting a business commercial lawyer may help you in determining the most suitable option for your startup as your business structure will impact your funding opportunities, tax responsibilities and personal liability. Though your startup’s business structure can be changed as your startup grows and develops, setting it up correctly from the outset based on your long-term goals will give your startup a solid foundation. You can choose between being a sole trader, being in a partnership, being a company or a trust. Each option will have its own set of legal requirements.
Registering as a Company
There are many advantages to registering your startup as a company. Many founders choose to do so as it protects their personal liability, creating a degree of separation between the founder and the liabilities of their business. Attracting investors to grow your business is also a great incentive to register your startup as a company. Before you decide on your preferred business structure you should consider consulting a commercial lawyer as there are consequences for breaching your duties and obligations under a company registration. To read more about the pros and cons of registering your startup as a company you can follow the link.
In Australia a company needs to have a minimum number of directors and secretaries, or they will be in breach of the Corporations Act 2001. Your startup’s directors must comply with obligations under Australian law and keep up with the latest changes to these laws. For example, company directors now need to verify their identity as part of a new director identification number (Director ID) requirement. A director ID is a unique identifier that a director will apply for once and retain forever. The new rules require directors to apply for a director ID if they are the director of a company, a registered Australian body, or a registered foreign company under the Corporations Act 2001 (Corporations Act) or an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act). The changes will help prevent the use of fraudulent director identities which is important given the integral role directors can have in the management of a startup.
Drafting Clear Contracts
When things are running smoothly, founders can forget about setting up the necessary protection for their venture. Whenever your startup enters a business relationship with a client, whether this is through the buying and selling of goods or services, the chance of expensive disputes and liability increases. Having the appropriate legal armour for your venture ensures that every party knows where they stand within a transaction. For example, your clients may want to know how they can terminate a contract or your policy on refunds. Though some ventures choose to draft these independently, it is always advised that you consult an experienced commercial lawyer as this will offer the best protection for your venture. Certainty and peace of mind can often be achieved with a clear contract which you and your clients can be comfortable with. There are many different contracts necessary for the protection of your venture, each serving very different purposes. At Allied Legal, we have listed some for you below:
Terms and Conditions
It is particularly important for online businesses to develop thorough and comprehensive terms and conditions. Your venture’s terms and conditions are a legal contract between your business and the people accessing your product or service. Without clearly defined legal contracts, your business will be at risk of potential lawsuits and disputes.
Though shareholders agreements are technically not a legal requirement, every company with more than one shareholder is well advised to have one. A startup’s shareholder agreement formalises the business relationship or partnership. The legal contract should contain the founder’s roles, responsibilities, salary, liabilities, equity in the company, limitations on their ability to work elsewhere and dispute resolution processes. The agreement should protect your interests as a shareholder and clearly outline each shareholder’s role and decision-making power. To find out whether your startup needs a shareholder’s agreement you can follow the link.
A distribution arrangement is essentially a transaction where one party, the distributor, distributes and sells goods by arrangement with the principal. The principal is likely to be the manufacturer or importer of those goods. If you have a product which needs to be distributed and you need help with its distribution and sale, you will be seeking out viable third-party distributors. Likewise, if you want to be a distributor, you should make sure that each party involved knowns exactly what their rights and obligations are before product is supplied or distributed. As a founder there are a few key concerns you should consider before entering into a distribution agreement which you can read more about here.
Distribution agreements can be tricky, so it is recommended that you consult a commercial lawyer to assist you with your agreement.
One of the drivers behind the idea of vesting is to help reduce the impact of a co-founder leaving by ensuring they don’t leave with a disproportionate amount of equity. Vesting ensures that should a co-founder leave during the vesting period, there is enough equity left in the company to adequately incentivise the remaining founders and team. This is even more important if you think that your startup will likely have to hire someone to replace the departing co-founder and that new hire will likely want equity for their services. Vesting agreements can help protect your startup against the effects of founder fallout. At Allied Legal, we regularly advise and prepare vesting agreements for startups. If you would like to read more about vesting agreements and how your startup can claw-back the vesting equity of a founder you can do so here.
Before hiring team members, ensure that your venture has the right company contract agreements in place. Employee contracts can be simple legal contracts that outline the basic terms of employment such as working hours, salary, probationary periods, and job outlines. An employee contract will also enforce confidentiality and protect your company’s intellectual property. Potential investors will expect to see that you have conducted your due diligence and drafted the necessary legal contracts for your venture. A business commercial lawyer will know which financial services and company contract agreements will work for your startup.
A commercial lawyer will ensure that the terms of your commercial lease agreement protect your interest as a lease is a long-term commitment and critical to the success of your venture. A commercial lease is a legally binding agreement between a landlord and a business tenant, setting out the rights and responsibilities of both parties for the use of a commercial premises. This arrangement is more complex in comparison to a residential lease since its terms can vary depending on whether the lease is a retail lease or non-retail commercial lease. We recommend consulting a commercial lawyer before entering into a commercial lease agreement to ensure that your lease contains the correct provisions to protect your venture. You can learn more legal tips for commercial tenants here.
A high calibre lawyer that specialises in commercial law will be better equipped to deliver straight forward and practical legal advice. At Allied Legal we provide legal advice to a variety of ventures, each with unique business needs. We understand this and consistently work to ensure that your business remains competitive and well-positioned to sustain growth. To connect with one of our startup experts, you can connect with us on 03 8691 3111 or sending us an email at firstname.lastname@example.org.