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Do you ever think about the businesses that other businesses rely on?
That’s exactly what a distribution business is. Instead of selling products or services directly to consumers, they provide them to other businesses.
If you’re considering starting a business that supports and supplies other businesses, a distribution business could be the right path for you. But before you dive in, there are several legal factors you’ll need to consider.
How Does A Distribution Business Work?
First, it’s important to understand how a distribution business works.
Products are typically made by a manufacturer and sold by a retailer. However, they don’t go directly from the manufacturer to the retailer. Instead, a distributor purchases the products from the manufacturer and then sells them to retailers or other businesses.
Distributors usually buy and sell in large quantities, and their customer base primarily consists of retailers. This process ensures that products move efficiently from manufacturers to store shelves, making them available to consumers.
What Kind Of Products Can Be Purchased By A Distributor?
A wide range of products can be bought and sold by a distributor. Typically, distributors purchase items such as homewares, clothing, books, and toys. However, distribution isn’t limited to manufactured goods — fresh produce, works of art, and even films often go through distributors before reaching the public. (We’ve written more about starting a film distribution business here.)
As a business owner, it’s important to decide what type of products you want to distribute. Consider your potential clients, the items they need, what’s available in your area, and the logistics of purchasing and supplying these products. Creating a business plan can help you map out these key details and set a strong foundation for your distribution business.
Does My Distribution Business Need To Be Registered?
Yes, you will need to register your distribution business. Once you have made a plan and are ready to officially start, you must register it under the appropriate business structure.
When choosing a business structure for your distribution business, you have a few options. In Australia, the most commonly registered business structures are sole trader, partnership, and company.
Sole trader and partnership businesses are easier to register. To register your business as either of these, you simply need to acquire an Australian Business Number (ABN), which can be done online. It’s free and only requires answering a few basic questions. You will also need to register a business name, unless the full name of the sole trader or the full names of all partners are used to run the business.
Registering a company is a little more complex. Companies are heavily regulated and must be registered with the Australian Securities and Investments Commission (ASIC). A company also requires certain legal documents, such as a Shareholders Agreement or a Company Constitution. You will need to determine the key people in the company, such as directors and secretaries. Unlike sole traders and partnerships, a company must have a separate registered address and contact details.
Sole Trader vs Company: Which One Do I Register?
If a sole trader or partnership is easier, then why register as a company?
While registering as a sole trader or partnership is much simpler, these business structures don’t offer the same legal protection as a company. Sole traders and partnerships are legally tied to their owners, meaning the owners are personally liable for all business debts and obligations. This puts their personal assets and finances at risk if something goes wrong.
Companies, however, are separate legal entities. This means the company itself can earn a profit, incur debt, own assets, and handle legal matters in its own name. Because there is a clear legal distinction between the company and its owners, a company structure limits personal liability, making it a safer option — especially in the event of legal or financial trouble.
Registering a company doesn’t have to be complicated if you have the right legal guidance. A legal expert can help you choose the right company structure, navigate ASIC’s registration requirements, and ensure your business is set up correctly from the start.
It’s important to consider your business goals and the level of legal protection you need before deciding on a structure. If you’re unsure, reach out to our legal experts — we’d be happy to answer any questions and guide you through the process.
What Else Do I Need To Start My Distribution Business?
When starting a distribution business, having the right legal agreements in place is essential. While setting up your business and planning its operations are crucial steps, ensuring your legal protection is just as important. Without the proper contracts, disputes or unexpected challenges could quickly derail your business, leading to costly, time-consuming, and stressful legal issues. With the right agreements in place, you’ll be better equipped to navigate challenges and protect your business from unnecessary risks.
Here are some key legal agreements to consider:
- Distribution Agreement: Outlines the terms between your business and suppliers or retailers, ensuring a clear understanding of rights, obligations, and distribution terms.
- Non-Disclosure Agreement (NDA): Protects confidential business information when working with suppliers, manufacturers, or potential partners.
- Privacy Policy: Ensures your business complies with privacy laws by outlining how customer and supplier data is collected, stored, and used.
- Shareholders Agreement: If you have business partners or co-founders, this agreement defines ownership rights, responsibilities, and decision-making processes.
- Employment Agreement: Sets out clear terms for employees, including roles, responsibilities, salaries, and workplace policies to avoid misunderstandings.
- Service Agreement: If your business provides distribution services to third parties, this contract defines service terms, expectations, and payment structures.
Having legally sound agreements in place can help your distribution business run smoothly and stay protected as it grows. If you’re unsure where to start, seeking legal advice can ensure your contracts are properly drafted to meet your business’s needs.
Does My Distribution Business Need To Follow Any Laws?
Your distribution business will be subject to various laws and regulations, meaning you’ll need compliance measures in place to meet legal requirements. Understanding exactly which laws apply to your business is crucial, and speaking with a legal expert can help you get tailored advice. In the meantime, here are some key compliance areas every distribution business should be aware of.
Australian Consumer Law
As a distributor, you may not deal directly with consumers, but ACL still applies to your business relationships. First, it governs your agreements with suppliers and retailers, ensuring fair and lawful transactions. Second, understanding ACL regulations can help you assess whether the products you distribute meet Australian safety and quality standards, reducing the risk of liability or legal disputes.
Data & Privacy Law
If your business collects, stores, or handles personal data, you must take steps to protect that information. This includes both cybersecurity measures and having the right legal protections in place. In the event of a privacy breach, it’s critical to know who to notify, what steps to take, and how to secure your systems. Having a data breach response plan in place can ensure you act swiftly and in compliance with Australian privacy laws.
Employment Law
When hiring employees for your distribution business, you have legal obligations as an employer. This includes ensuring fair wages, proper entitlements (such as breaks and leave), and a safe working environment. Workplace health and safety is especially important in distribution businesses, where manual handling and logistics can pose risks. Employers should implement clear workplace guidelines to maintain compliance and protect both employees and the business.
Intellectual Property (IP) Law
If your distribution business has a brand name, logo, or exclusive rights to distribute certain products, protecting your intellectual property (IP) is essential. Registering a trade mark ensures that your brand identity is legally protected, preventing competitors from using similar names or logos. If you are distributing licensed products, having a clear licensing agreement with the rights holder can help you avoid legal disputes. Ensuring your contracts include IP protection clauses can also safeguard confidential business information, product designs, or proprietary processes.
Import & Export Regulations
If your business involves importing or exporting goods, you must comply with customs regulations, trade restrictions, and product compliance laws. This includes paying the correct customs duties and tariffs, ensuring that all imported products meet Australian safety standards, and following biosecurity regulations to prevent prohibited goods from entering the country. You may also be able to leverage Free Trade Agreements (FTAs) to reduce costs and expand your distribution reach. Understanding these regulations is crucial to avoiding delays, penalties, or goods being seized at the border.
Environmental & Sustainability Laws
Sustainability regulations are becoming increasingly important for distribution businesses, particularly those handling packaging, imports, or high-volume goods. Businesses may need to comply with waste management laws, such as the Australian Packaging Covenant, which regulates how businesses dispose of or recycle product packaging. If distributing electronics, batteries, or other regulated products, you may also need to comply with Product Stewardship Schemes to ensure responsible disposal. Many retailers and suppliers now have sustainability requirements, so ensuring your business meets environmental standards can improve compliance and strengthen business partnerships.
Key Takeaways
If you’re starting an Australian distribution business, having the right legal measures in place will help you set up your business correctly and ensure it remains safe and compliant as it grows.To summarise what we’ve discussed:
- A distribution business supplies products to retailers rather than selling directly to consumers, and selecting the right products and clients is key to success.
- Business registration is required, with options including sole trader, partnership, or company — each offering different levels of legal protection.
- A company structure provides limited liability and stronger legal protection compared to a sole trader or partnership.
- Having the right contracts in place — such as Distribution Agreements, NDAs, and Employment Agreements — helps prevent legal disputes.
- Compliance with Australian Consumer Law (ACL) ensures fair business practices and protects against liability for faulty or unsafe products.
- Privacy and employment laws govern how businesses handle customer data and ensure fair treatment and safety for employees.
- Import/export regulations and environmental laws impact distribution businesses dealing with international trade, product compliance, and sustainability obligations.
If you would like a consultation on your starting a distribution business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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