Starting an online business in Australia is a common step to take – and a big one! There’s a stable market and plenty of opportunities for businesses when you expand your reach.
Not only do you reach more customers, but there’s a lot more flexibility in how you deliver products or services.
However, like any other type of business, there are a number of legal considerations to take care of in order to make sure your online business is legally compliant and protected. For example, what happens in the case of a data breach? What kinds of documents do you need to protect your website internationally?
In this article, we’ll go through the legal requirements for an online business in Australia – read on to learn more.
What Are The Legal Requirements For Starting An Online Business?
Starting an online business means you need to consider some additional matters, such as how to protect your business in an online environment.
But, of course, let’s go through the basics first – how does business registration work?
Online Business Registration
Once the application is successful, an Australian Business Number (ABN) will be generated for you. However, you may also receive an Australian Company Number (ACN) depending on your business structure. So, what business structures can you choose from?
What Business Structure Should I Choose For My Online Business?
Deciding on the structure of your business will determine how your business operates and what the registration process will look like. It will also set out how liability will work moving forward.
A sole trader and company structure are prevalent types of businesses and they are vastly different. A sole trader is an individual running a business, whereas a company is a legal entity of its own with additional members such as directors or a company secretary (although this can be one person).
Other types of business structures involve partnerships, trust, social enterprises and even dual company set ups. For more comprehensive advice on the structure that is right for your business, we recommend talking to a legal professional.
Do I Need To Register My Business Name?
Yes, it’s important to register your business name. Once you have registered your business name, you will be able to trade under it.
Registering a business name does not mean the name is in your possession. If that is something you’re interested in, then you will need to look into getting it trademarked (we’ll discuss this in more detail later).
Before you decide on a name you want registered, check the Business Names Register to avoid disappointment later on. It can also be worthwhile to see if there are any domains or trademarks with your business name.
Register With ASIC
If you will be running a company, then the Australian Securities and Investments Commission (ASIC) is important as they are one of the main regulatory bodies you will be reporting to.
All companies must be registered with ASIC and have an Australian Company Number (ACN) along with their ABN. If you make any changes to your company, these will need to be reported to ASIC too.
Protecting Your Intellectual Property As An Online Business
Intellectual property refers to the intangible assets owned by your business. As an online business, much of your business activity will depend on your IP, so one of your biggest priorities is protecting it.
Luckily, there are a number of registration processes and legal documents you can have in place to protect your IP.
Non-Disclosure Agreements (NDAs) bind the parties to the agreement to secrecy over particular matters. When it comes to intellectual property, an NDA can ensure that if you have allowed someone to view your business’ intellectual property, they cannot reveal what they saw to another party.
For example, some businesses choose to have an NDA for their business plan so they can disclose their business venture’s future to investors without the risk of that inside information falling into the wrong hands.
Shannon has hired a consultant for advice on growing her business. The engagement will require the consultant to look at some internal documents of the business.
Prior to working with the consultant, Shannon has them sign an NDA to make sure they don’t reveal insider information, such as her intellectual property, to anyone outside of the business.
Much like NDAs, confidentiality clauses also prevent others from revealing information about your business to another unauthorised person. Confidentiality clauses can be inserted into contracts such as Employment Contracts or Contractor Agreements to bind the other party to secrecy.
Non-Compete Clauses take privacy a step further by preventing the signing party from working with a competing business. It places a limitation either by time or geographical location, stopping the other party from associating with a potential competitor.
Non-compete clauses must be done within reason and not unnecessarily control the party being held to it. If it is unreasonable, it will not stand in court.
Register A Trade Mark
Getting your trade mark registered is another way to protect your business’ intellectual property.
A trade mark is anything that can be used to uniquely identify your business (as long as it’s not too descriptive). For example, sounds, logos, phrases, names and even smells can be trademarked.
When you register your trade mark with IP Australia, it adds your IP to the register and prevents other people from using it.
Copyright And Patents
Copyright and patents can also apply, depending on the kind of business you are running.
For new designs, substances, methods or processes a patent could potentially be registered. In order for a patent to qualify, it must meet the requirements of being:
Once a patent is registered, you have the right to manufacture, licence and otherwise use it.
What Are My Privacy Obligations As An Online Business?
Privacy obligations are a major consideration when running a business online. Since you’re handling personal information from users and other people you may work with, certain regulations will apply to your business activities.
It can be something as simple as asking users to create an account using their email when they sign up to your website. An email is considered personal information, so this means the Act will apply to you.
You need to make sure you are compliant with privacy laws in Australia to avoid hefty fines and other penalties.
Privacy Act 1988
The Privacy Act 1988 is one of the key pieces of legislation determining how private information should be handled. Much of the regulations and rules that will determine your management of privacy stem from this particular legislation so it’s important to be aware of it.
The Australian Privacy Principles also work alongside the Privacy Act, so it’s worth familiarising yourself with these.
The GDPR is the European Union’s General Data Protection Regulations (GDPR). Much like the Privacy Act and Privacy Principles, the GDPR determines how private information is handled in the EU.
If your online business plans to establish itself in the EU, then it must meet the privacy requirements set out by the GDPR.
This also helps build a healthy relationship with your users, which is better for your business’ online presence overall. As an online business, your reviews are vital as it affects your branding and the way people perceive your business.
As such, you want to keep your users happy.
Data Breach Response Plan
A Data Breach Response Plan is a proactive way to deal with potential data breaches. While there are many measures you can take to protect your business in an online environment, there will always be the risk of personal data being compromised .
As such, a Data Breach Response Plan sets out a process for key personnel to follow if a breach actually occurs. It’s also a great way to show users and customers that you take your privacy obligations seriously, and that you’re prepared to protect your users’ personal information in the case of a cyber attack.
Legal Documents For Online Business
For any business, the legal documentation is what binds your venture together and keeps it protected. There are a number of legal documents you will need to look into when starting an online business and most of them are connected to some key parties your business will be interacting with.
Let’s go through some key legal documents below, based on the different commercial relationships your business may have.
Hiring staff means you will need an agreement that sets out your obligations along with theirs. Generally, employers hire either contractors or internal employees of the business, and both will need different contracts.
This is because employees and contractors are different, and they have different entitlements. As an employer, it’s your duty to ensure you understand the difference between employees and contractors so you can ensure you are not breaching your respective obligations to them.
When a member of staff is employed internally within the business, this means you owe them certain obligations under Fair Work Australia. For example, you need to ensure they are provided with a safe working environment (this applies even where your employees work from home!).
It also means you are responsible for certain taxes, insurance and their superannuation contributions. This is different to what you owe to contractors, which we’ll cover below.
Contractors are hired externally from the business, usually for a certain period of time or until a specific task is complete. Businesses commonly engage contractors for short-term projects.
However, contractors have different entitlements to an employee since they are not considered internal staff. So, as an employer, you don’t need to worry about their taxes or insurance – they take care of that themselves.
As such, a Contractor Agreement should specify they are not an internal member of the business and their role and arrangements should reflect this.
It’s important to be careful here – if a contractor begins to look too much like an internal employee, you may end up owing them the same rights.
Sometimes, employers make working arrangements so that their employees look like contractors. They often do this so they can avoid meeting their obligations to employees, such as paying them minimum wage.
This is known as sham contracting and it should be avoided at all costs. If you need help with your employer obligations, Sprintlaw has a team of employment lawyers who are happy to chat you through your options.
Working With Suppliers
Suppliers are other businesses or providers your business will interact with in order to purchase necessary items. For example, a business that sells art online may have a supplier for their materials. Having the right legal agreements with your suppliers is a positive step towards having a well operational relationship.
A Supply Agreement is the legally binding contract between the supplier and your business that sets out the key terms of your relationship.
It should generally address the following:
- The items to be supplied
- Date and time of delivery
- Payment terms
- Warranties and liabilities
- Dispute resolution
Internationally Enforceable Agreements
If your online business is going to be reaching a market outside of Australia or you are simply ordering materials from overseas, then it’s important to make sure your contracts can be enforced in multiple jurisdictions.
An internationally enforceable contract takes into account the contract will need to apply in different countries and cater the document to this.
Usually, you’d need to include an international arbitration clause to cover these grounds. Otherwise, your other option would be for your agreements to discuss the governing law and jurisdiction that you and the other party agree to.
This is something that’s important to consider as an online business, as your reach is likely to be international.
Dropshipping For Online Businesses
With online businesses having so many costs and expenses, it’s common for them to consider what we know as a dropshipping model.
Dropshipping is when the manufacturer sends the goods directly to the customer, rather than shipping it to the retailer first. Dropshipping can be a great way to have more efficiency as it saves you from purchasing more stock than you need as well as saving you the trouble of storing it.
However, dropshipping also has its downsides. For example, you don’t get to see the product before it reaches your customers and the shipping cost may get expensive if you have multiple manufacturers. Further, it means you need to think about who will be liable if something goes wrong with the quality of the product or delivery – you or the manufacturer?
Therefore, you will be relinquishing some control. In order to combat this, a good Dropshipping Agreement is needed to make sure the system works well for you and covers all key grounds.
Consumer contracts are not only essential, but in many cases, legally required. Let’s take a look at the types of legal documentation you will need to have with your consumers, and ways you can ensure you meet your obligations to them under the relevant consumer laws.
Website Terms And Conditions Or Terms Of Sale?
Terms of sale refer to the agreement between you and your customers which basically sets the rules and requirements for both parties if a transaction were to occur.
Website Terms and Conditions(T&Cs) is an agreement between your business and anyone who chooses to use the business website. Often, a website’s terms and conditions are placed the moment a user enters the website.
The document dictates how a customer can use the website and the rights the business has in accordance with it. For example, the ability to remove someone leaving inappropriate comments.
Both agreements cover significant matters and as an online business, it’s wise to have this sorted before your website goes live to regulate your liability for an internationally accessible platform.
Disclaimers For An Online Business
Disclaimers can limit your liability when it comes to the risks involved with your business activities.
For example, if you’re selling beauty products, then you may have a disclaimer next to the ingredients list clearing yourself off any liability if someone’s skin reacts to the products (there are also a number of labelling and packaging requirements under Australian law that you should be complying with).
However, keep in mind that disclaimers are not likely to work when there is negligence involved. Therefore, it’s just as vital to make sure you’ve taken reasonable measures to ensure the safety of your consumers.
Online Business Service Agreement
If your online business provides a service, then you will likely need to get a Service Agreement. A Service Agreement lets both parties know what is expected of them, such as the service that is going to be provided and the payment that was agreed upon in exchange.
In addition to the basics, it also covers:
- Intellectual property
- Dispute resolution
- Force majeure
Mila is a graphic designer who provides her services to her clients online. Once a client submits a request, Mila gives them a price quotation and a service agreement to sign before she accepts the job and works on their design.
What Other Documents Do I Need For My Online Business?
Aside from the legal documents you will need to manage your business relationship with employees, suppliers and consumers, there’s a few more to consider.
Read on to learn more.
If your business is being run as a partnership, then a Partnership Agreement is necessary. No matter how great the relationship is, a Partnership Agreement is essential in hashing out details regarding profits, responsibilities, shares, termination of the business and management plus other valuable discussions.
If the business partners have a falling out or something goes wrong which puts the business at risk, your first step should be to refer to this Partnership Agreement for a clear process on what to do.
Company Constitution For An Online Business
If you plan on running a company, one of the key legal documents you’ll need is a Company Constitution. This is essentially the governing document of your company – it should set out rules around how meetings will be held, what a director needs to do and what happens if a shareholder wants to leave (this would also be covered in a separate Shareholders Agreement).
The Corporations Act 2001 generally governs how companies should operate, however, section 141 of the Act has a set of replaceable rules. If a company doesn’t have a constitution, these rules will apply.
However, if you do opt to have a Company Constitution, then that document will override the provisions set out in section 141.
Business Plan For Online Business
Technically, a business plan is not a legal document. However, it’s still a relatively important one. Before you set out to start a business, you will likely conduct some research, write down ideas and set goals.
The business plan is essentially your goals, your resources and relevant milestones in one document. . The business plan is usually a handy tool in not only having all your work in one place, but it can help in keeping your business on track.
Online Business Term Sheet
A Term Sheet is a common document that business founders use when starting a business. It should set out the key terms of a commercial arrangement, however, it is not actually legally binding. It can be seen as the blueprint before a proper contract comes into place.
Generally, term sheets are used as a precursor to a more substantial commercial arrangement – it’s usually not legally binding and once all parties are happy with what they have seen on the term sheet, they can move on to negotiate the contract.
Additional Considerations For Online Businesses
There are a couple more details to take into account when starting an online business. We’ve laid out some common ones for you below.
Do I Need A .au Domain
Naturally, every detail of an online business’ website is of crucial importance. After all, it’s one of the first points of engagement for your customers.
Commonly, you can expect your website to have ‘.com.au’ however, there have been recent changes to Australian domains where you now have the option to get a ‘.au’ domain name. This might be preferred by some businesses, as it looks much cleaner and demonstrates that your business is a trustworthy Australian site.
You can find out more about applying for an .au domain name here.
Exclusion Vs Limitation Of Liability
Running a business comes with the risk of liability. This is basically the legal responsibility you hold over a particular incident. For example, if an item a consumer bought from your business was faulty or damaged causing them harm, then you may be considered liable for their injuries.
Due to this, you may wish to look into exclusion and limitation of liability clauses for your contracts.
Limitation of liability clauses place a restriction on the amount of damages that can be paid for an incident. For example, a business may find itself liable for an incident with a consumer, however, they can seek no more than $200,000 in damages due to a cap placed by limitation of liability.
Exclusion clauses can also work to limit liability by placing time limits for when a claim can be brought forward as well as excluding liability for particular acts.
The clauses you decide on using (if any) will be determined by the nature of your business and the risks involved. Even though it is perfectly legal to use exclusion and limitation of liability clauses, they must not breach other legal regulations such as unfair contract terms or ACL regulations.
Australian Consumer Law Obligations
Australian Consumer Law (ACL) aims to protect consumers from unfair trading practices. This ranges from unfair contract terms to scams and misleading conduct.
As a result, all consumers have particular rights and it’s the duty of every business to uphold these rights and treat consumers accordingly. As a business owner, it’s important to be aware of your duties under the ACL. The ACL covers matters such as:
- Unfair contract terms
- Misleading and deceptive conduct
- False advertising
- Goods or services that are free of harm
Work From Home Policy
With the increased popularity of flexible work arrangements, some or even all of your employees may work from home. Just because an employee isn’t working in a shared physical space, it doesn’t necessarily mean your duty as an employer can be avoided – it just needs to be catered to working from home.
Therefore, it’s important to have strong work from home policies which may include the behaviour expected of employees on messaging channels, login hours, online meeting etiquette and other important matters.
One of the primary obligations employers have is making sure the working environment they provide is safe and free of harm for their employees. This is known as Work Health and Safety (WHS).
All employers are legally required to comply with WHS standards that have been set out by Safe Work Australia.
In addition to WHS, it’s important to make sure that as an employer, your employees are receiving the correct pay, leave, breaks, privacy and entitlements.
If you’re thinking of starting an online business in Australia, then there is obviously a lot to consider! Don’t stress though – with the right legal expertise in your corner, these matters can be taken care of.
To summarise what we’ve discussed:
- Your first step is to choose a business structure and register your business
- Protect your IP with trademark registration, NDAs and other key legal documents
- If your online business conducts activities in the EU, you need to comply with data and privacy requirements under the GDPR.
- Make sure your written agreements with employees, suppliers and consumers cover all key grounds as an online business
- You may also need a Company Constitution, Business Plan and a Term Sheet depending on your business’ goals
- Consider having appropriate workplace policies in place to ensure all staff are trained to comply with the relevant rules
If you would like a consultation on legal requirements for starting an online business, you can reach us at 1800 730 617 or email@example.com for a free, no-obligations chat.
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