If you are looking at starting a new business, an important consideration is all the risks involved. Whether it be who you’re working with, where you’re expanding to or the type of information you’ll be handling, it’s important to mitigate the relevant risks.
This is where you’d draft the right legal documents.
These documents play an essential role in protecting your interests, and should always be in place before you take the first step.
What Legal Documents Do I Need To Start A Business?
When it comes to any business, it’s important to have key legal documents to set out the key terms of the relationships and transactions you’re entering into.
Registration Documents (With ASIC)
To make your business official, you will need to Register With ASIC. This ensures your business gets taxed at the right rate, avoids pecuniary penalties and protects your brand and ideas.
To register your business, there are several documents and processes that must first be completed.
Firstly, you must register for an Australian Business Number (ABN). An ABN is a number that identifies your business, both to the government and to customers.
You can apply for an ABN and other key business registrations through the Business Registration Service. This is a free process, but before registering, you should have proof of your identity, an identified business structure, and details about your business activities and associates.
Secondly, you must have a business name. This is the name your business will operate under. Again, registration is free through the Business Registration Service. Before registering, you should have an identified business structure, an ABN, and have checked that your business name is available.
Thirdly, depending on the type of business you are planning to start, certain tax registrations are necessary. A Tax File Number (TFN) is required for all businesses. Further tax registration may be necessary depending on the structure of your business.
For instance, if your business is planning to operate as a partnership, you will need a separate TFN for you and your business.
Fourthly, licences or permits are required to get approval to do certain activities. This will depend on the business structure you choose, but it is a good idea to check what is required before attempting to register your company.
Companies are a bit different to businesses, so the registration requirements will differ, too. For example, you’ll need an Australian Company Number (ACN) in addition to an ABN.
Employment Contracts are an important aspect of all businesses. Hiring employees or working with other businesses such as vendors requires contracts so that the duties and rights of all parties are clearly set out and explained.
Having these contracts in place early on ensures that disagreements or disputes as to these rights and duties will be limited, as the situation will be clear from early on.
The terms of such contracts will differ according to the business you are planning to start, thus, specialist legal advice should be taken.
Most contracts will contain details going to:
- Leave entitlements
- Rights and responsibilities
- Termination of employment
Non-Disclosure Agreements (NDAS) are agreements by parties not to disclose confidential information to other people.
Generally, a NDA will prohibit the other party from disclosing any confidential information that you provide to them. If you are early on in the process of starting up your business, a well-drafted NDA can keep commercial discussions between parties private, thus instilling a degree of trust and confidence which in turn can assist in open negotiations between you and other parties.
This can also help protect your business’ IP and other processes that may be vital to your success. So, NDAs are a great way to ensure that kind of information doesn’t end up in the wrong hands.
Agreements Between Partners
If you are planning on going into business with business partners, you’ll need to draft an agreement that covers all the main concerns for your business and your relationship with your business partner.
Each of the partners should then sign the agreement which becomes a legally binding record of the terms set out in the agreement.
An agreement between partners should include or discuss:
- The purpose of the partnership – including the relevant goals and objectives of the business
- The rights, responsibilities and obligations of the partners
- How income and losses are to be distributed
- The decision making process
- The investment of each partner
- Regulations on conduct of the partners
- Policy on bringing another partner into the business
- The process when a partner wants to leave the business
A Supply Agreement is a contract that describes the arrangements between a supplier (party providing the goods) and purchaser (party receiving the goods in exchange for payment). The nature of such an agreement will depend on the specific type of business you’re running.
Generally, these agreements will help clarify the role and responsibilities of you and your customer, and reduce the chance that a dispute will occur in your dealings. A well-drafted Supply Agreement will also limit your liability if something goes wrong, help supply chain issues, secure your revenue streams and provide other important protections and limitations specific to your business.
Although not technically a legal document, a Business Plan is arguably one of the most important documents you need to have when starting a business.
A business plan is the blueprint of your business venture. It contains all the original ideas, research, data, actions and systems that make up your business.
Having a Business Plan:
- Helps you to prioritise by giving your business direction, clearly defining your objectives, mapping out how you’ll achieve your goals and manage possible bumps in the road
- Gives you control over your business – the planning process helps you learn about the different things that could affect your success. If you’re already in business, it helps you to step back and look at what’s working and what could be improved
- Helps you seek finance – if you’re seeking finance for your business, you’ll need to show banks and investors why they should invest in your business. A business plan can provide a guide for you and your stuff for explaining your reasoning and potential.
You can also protect your Business Plan with an NDA to make sure your plan doesn’t end up in the hands of a potential competitor.
It’s worth noting that there are a few exceptions to this rule. For example, even if your business does not reach the $3 million threshold, the Act may still apply to you if you handle health information.
Terms And Conditions
Terms and Conditions (T&Cs) are important for setting out how clients engage with your business. Further, they limit your liability, secure your revenue streams and provide other important protections for your business.
Essentially, users will need to accept your terms and conditions before they can engage with your business. For example, you may require users to make an account before they can purchase anything from your site.
Although the type and nature of T&Cs will change according to your business, the most important role they play relates to limiting the liability of your business.
What Else Should I Consider?
You might also like to consider additional documents before starting your business. A few select ones are explored below.
Registering A Trademark
If you want to protect your business name, brand names, logo or catchphrases, you should Register A Trade Mark. This will protect your intellectual property moving forward, which is often essential to your business’ success.
A trademark is an investment in the protection of the identity of your business. If you need help with the registration process, or if you want to have a chat about how you can protect your IP generally, our lawyers are happy to help.
A Non-Compete Clause
A Non-Compete Clause or Agreement (Non-Compete) protects your business from competition from employees, contractors and other third parties who have access to your confidential information. So, how does it work?
A Non-Compete will restrict how these parties can operate. It may limit the geographical region in which the restricted party can conduct business, or prevent the restricted party from conducting business in a particular industry or field of work for a set period of time.
This way, you can rest assured that any ex-employees or workers who had access to your inside information or trade secrets are bound by this clause, and reduces the risk of sharing valuable confidential information – especially with competitors!
If you want to set up further protections for your confidential information, a Confidentiality Clause is a mechanism not only to protect sensitive information, but to prevent employees from stealing valuable information.
Simply put, a Confidentiality Cause is a legally binding agreement that places an obligation on one or both parties to keep specified information confidential. If your business idea hinges upon certain information like a client database of financial data, a Confidentiality Clause might be a good idea to protect your business’s future.
Setting Up A Company
Setting up your business as a company could prove useful for your business structure.
A company business structure is a separate legal entity, unlike a sole trader or a partnership structure. This means the company has the same rights as a natural person and can incur debt, sue and be sued. It is a legal entity that’s separate from you, so liability is limited.
If you want to set up and register a company, you will need certain documents like a Company Constitution and a Shareholders Agreement. If you are thinking about going down this path, feel free to contact our team for help with company registration.
Setting up a business can be a daunting prospect. Coming up with ideas and planning is hard, so let us worry about the legal side.
Our expert small business lawyers can guide you through every step in the process, including the legal documents you’ll need.
If you have any more questions on the legal documents required to set up a business, you can reach us at 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat.
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