Dispute Resolution

Legal considerations for starting your online business

Online business is booming. Most consumers now favour online shopping given that it is quick, convenient and usually cheaper than in a retail shop.

Consider the legal considerations and responsibilities of running business online, preferably before you start trading.

THE FORMALITIES & NECESSARY REGISTRATIONS

The first thing that needs to be remembered is that even though you do not have a shopfront, you are still operating a business. As such, there are certain legal requirements that you will need to abide by. In particular, you need to think about:

  • The structure of your business – consider asset protection, risk management, taxation issues, income splitting;
  • Registration of your business name and (the all too often overlooked trademarks, social media and URL registration);
  • Obtaining a tax file number, ABN and, if required, registering for GST;
  • Putting in place Terms of Trade, Privacy Policies and the like.
  • Government regulations and any advertising restrictions regarding the products or services that you wish to sell.

Although these considerations may seem daunting at first, it is important that they are given due consideration. Take for instance the choice of business name. Many would consider this the most important decision in the establishment of an online business. When choosing a name, you need to make sure that it does not infringe upon or not too similar to an existing business name or another person’s trademark. Preferably you would do this before spending money on websites, logos and the like!

CONSUMER LAWS

Before embarking into the world of e-commerce, it is important to remember that there have been major legislative changes to the laws regulating business transactions. In particular, you should take note of the Australian Consumer Law which regulates consumer affairs and transactions. Provisions which may be relevant to an online business usually concern the issue of misleading and deceptive conduct, misrepresentation and misdescription of products.

Consider the descriptions that you will be putting up about the products you will be selling and the impact that these may have in the mind of the consumer. If you think that they may create a false assumption, then it is best to re-word them and make it clear exactly what the product or service does.

If you are planning on selling products internationally, then you may also need to take regard of legal requirements of the countries that you are proposing to deliver to.

TERMS OF TRADE

Most online businesses do not sufficiently state the terms of their proposed sale to consumers. The description of the goods is usually there, as is the price and a method of delivery… but that’s about it! What if something goes wrong – what other terms would be useful?

Consider these:

  • Where is the law of the contract?
  • At whose risk are the goods while in transit? Are they insured?
  • What warranties or indemnities (if any) are required?
  • Can the performance of the contract be delegated to a third party?
  • Have you secured supply of key components of your product?
  • Can liability be limited in the contract?
  • What happens if circumstances beyond my control prevent you from fulfilling my contractual obligations?
  • Do you need to protect the intellectual property in any goods sold?
  • How will any disputes be resolved?

Many, if not all, of these matters can be addressed by having appropriately drafted terms of trade. If you haven’t brought all of your terms to the customer’s attention before the contract is entered into, they do not form part of the contract at all.

SECURITY & PRIVACY CONCERNS

On-line systems are at risk of fraud 24/7 and from anywhere in the world. When dealing with sensitive information such as personal contact details and credit card information, it is important that you have appropriate security measures in place. You should aim to:

  • Ensure that all personal details and credit card information is securely stored (and encrypted or not stored at all);
  • Take steps to seek to prevent fraud by using appropriate firewalls and software (as well as third party payment systems);
  • Provide a safe and secure online space.

Remember that by doing these actions, you are not only protecting consumers, but also protecting your and your business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

in Business / Commercial Law / Dispute Resolution / General  by 01 Nov 2016 0 comments

The importance of proper Terms of Trade for your business

DOES YOUR BUSINESS EVEN HAVE ANY TERMS OF TRADE? IF SO, ARE THEY ADEQUATE (AND UP TO DATE)?

We all sell goods and services, but do we ever really stop and think about what it takes to have a valid contract? There are 4 essentials at law, namely:

  1.  Offer – what is being sold
  2. Consideration – the price
  3. Intention to legal consequences – this is presumed at law
  4. Acceptance – agreement to purchase

Even buying a bottle of water for $1 is entering into a contract. We know what is on offer, we know the cost, we know that once we pay the price, ownership changes hands and it is accepted by paying the price.

Certain things cannot be sold without a written and signed contract in a very specific format that contains certain prescribed documents and words – such as a contract for the sale of land. Most things however don’t need that sort of detailed documentation to form a legally effective and binding contract

Most T&Cs are terribly inadequate. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not.

Most businesses that have Terms of Trade have terribly inadequate ones and often, the terms don’t form part of the deal at all as they are notified too late – for example where they are printed on the back of a receipt after the deal is concluded. The Terms need to be agreed before the deal is done.

WHAT SHOULD BE IN YOUR TERMS OF TRADE?

Here is a some of the things that should at least be considered for Terms:

  • Parties names and details – Use proper names (a business name is not a legal entity). Who is the buyer/seller?
  • Quotes/estimates – Is it fixed price or based on hourly rates or quantities?
  • How is the offer accepted – Payment, signature, purchase order, ticking a box to acknowledge the terms and then clicking ‘submit’ for online businesses
  • Exclusivity – Is there any obligation not to deal with or sell to others?
  • Term – Is there a fixed term for the arrangement or is it ongoing?
  • Renewal – How can it be renewed and for what term?
  • Obligations – What other obligations (if any) do the parties have to each other?
  • Title – When does ownership to the goods actually pass?
  • Risk – Who is responsible for the goods whilst in transit?
  • Insurance – Who is to take it out? For what amount? To cover what risks?
  • Payment – How much? When is it due? How is it to be paid?
  • Interest – What is the consequence for paying late? What about liquidated damages?
  • Security – What security (if any) is provided to secure late/non-payment? Charge, Mortgage, PPSR Security Interest? Is a director to guarantee a company’s obligations?
  • Termination – On what basis? On what notice?
  • Notices – How are they given and what period of notice is required?
  • Obligations on termination – Return of goods, payment in full of all amounts due etc
  • Limitation of liability – To what extent is it limited? What liability can’t be excluded?
  • Releases and indemnities – What things may be covered by a release and what events is one party entirely responsible for?
  • Privacy – How is private information to be dealt with? Can you use their details to market other goods to them?
  • Warranties – What promises have been made about the product?
  • Entire agreement – is this agreement intended to cover the field regarding the parties’ dealings? Or are there numerous contracts that operate on other terms?
  • Force majeure – What happens if the parties can’t comply through no fault of their own, like a strike, accident or inclement weather?
  • Dispute resolution – What do the parties need to do to resolve a dispute? Mediate? Get an expert? Can they go to court without doing this?
  • Jurisdiction and governing law – which law applies and which court will hear any dispute? Really important for online trading!
  • Delegation – Can a party delegate their role to a third party? How? Do they need approval?
  • Assignment – Can a party assign the benefit of the contract to someone else?
  • Confidentiality – Are the terms of the deal to be kept secret? Are staff also to be restrained?
  • Intellectual property – Who owns the IP? How is it to be used/returned?

If you buy, hire, sell or on-sell goods or services, whether through a shopfront or on-line (or you have a client that does so), please consider whether they actually even have any Terms and Conditions of Trade or if they do, whether they are adequate.

If they do have T&Cs, it may be that they simply copied and pasted various parts from other documents and websites they had seen. This can often lead to them mistakenly thinking they are adequately protected when they actually are not.

They may need to be updated to reflect recent changes in the law such as the Australian Consumer Law and the Personal Property Securities Act (or if they refer to legislation that doesn’t even exist anymore! (Such as the old Corporations Law and the Trade Practices Act).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting or buying a business, drafting business documents or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

in Business / Commercial Law / Dispute Resolution / General  by 21 Sep 2016 0 comments

Do you have a Shareholders Agreement?

CONSIDER THESE COMMON ISSUES

What would happen to your company if you or your business partner became so ill that one of you could no longer work – or worse still, died?

Would you still be paying dividends or making distributions of profit to that person even through he or she is not around, or to their spouse or family?

If they died and left their spouse everything in their Will (including their shares in your company), would you want to be in business with his or her spouse?

What if your business partner sold his or her shares in your company to a complete stranger or a competitor following an argument?

How are your shares to be valued and over what period will the purchase payments be made to your family? Or is there an insurance policy to fund the payment in a lump sum?

HOW CAN A SHAREHOLDERS AGREEMENT HELP?

A Shareholders Agreement can cover these not uncommon scenarios and tailor the rights and obligations of the shareholders of a company to fit your personal circumstances and your particular business to help avoid some of these potential problems for everyone’s ultimate benefit.

You may have a Will, but you may not have certainty in relation to what will happen to your family or your business in the event of your death or serious illness unless these matters are clearly dealt with in a Shareholders Agreement.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to business succession, estate planning, litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your commercial law needs.

in Business / Dispute Resolution  by 06 Sep 2016 0 comments

Wills with testamentary trusts – why you need one

WHAT IS A TESTAMENTARY TRUST?

A Testamentary Trust is simply a trust established by a person’s Will.  As opposed to more “simple” Wills, where beneficiaries receive the benefit of any gift personally, with a Testamentary Trust, the beneficiaries receive the benefit of the gift but rather than having it legally owned by them personally, a trustee holds the relevant asset in trust for them.

Wills with Testamentary Trusts are recommended by many lawyers, accountants and financial advisers for various reasons, including asset protection and taxation advantages.

ASSET PROTECTION

Because of the legal ownership being different to the beneficial interest, Testamentary Trusts can offer beneficiaries significant and important advantages such as asset protection. As the trustee of the Testamentary Trust owns the asset (not the primary beneficiary personally), creditors and trustees in bankruptcy of the relevant beneficiary cannot gain access to the asset.

Often, beneficiaries are in business for themselves and have implemented asset protection measures so as to keep their assets safe from claims by third parties. The last thing that beneficiary may want is to receive an inheritance in their personal name, effectively undoing all of their efforts to safeguard their assets!

There can be significant tax advantages in taking an inheritance through a testamentary trust, in addition to asset protection.

Testamentary Trusts can be drafted so as to have the beneficiary effectively control the trust and for that control to be relinquished on the occurrence of certain events, such as bankruptcy or divorce/marital separation, with a nominated person to act in the role of trustee whilst that incapacity remains.

TAXATION BENEFITS – INCOME SPLITTING

Rather than taking a gift in a personal capacity as would usually be the case with a more “basic” Will, with a Will that incorporates Testamentary Trusts, beneficiaries have the ability to split income earned among other people in their family such as spouses, children, grandchildren or any other company or trust in which they have an interest.

Where an estate has income producing assets such as an investment property, under a more “simple” will, the person who received that gift would have the income earned from that asset added on top of the income they already receive from their employment or investments. This could mean that they go into the next marginal tax bracket and pay significantly more tax.

A Testamentary Trust allows the income earned to be split amongst the various family members, many of whom are likely to either not be working (so the tax free thresholds become available) or earn lower incomes (and are therefore in lower taxation brackets).

Children that receive income from a Testamentary Trust are taxed at marginal rates as if they are adults (as opposed to the usual discretionary / family trusts, where they are taxed at unearned income penalty tax rates) so for a family with a non-working spouse and several children, significant income can be received whilst very little or no tax may be payable on the testamentary trust income.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

in Dispute Resolution / Estate Planning / General  by 30 Aug 2016 0 comments

Do you have customers that owe you money?

WHAT OPTIONS ARE THERE TO CHASE DEBTS?

Where a customer has not complied with the terms on which goods or services have been provided by a business, in that they have failed to make payment as and when required and despite repeated requests, it can often be of assistance for a demand letter to be sent by a lawyer.

The letter of demand will usually require payment in full by a defined time or may propose a payment plan with payment by instalments.

McKillop Legal is often called upon to advise in relation to debt recovery issues. We find that a strongly worded demand, clearly setting out the situation and seeking payment within a reasonable period usually results in payment.

There are various options available for business owners to recover moneys due.

If a letter of demand does not result in payment, there are various options available.

Where the debt is due by a company and the debt is more than $4,000 (this statutory minimum was $2,000 at the time of first publishing this article but changed during COVID and has increased for demands served on or after 01 July 2021) and it has not been disputed, a Creditor’s Statutory Demand can be issued under the Corporations Act giving the company 21 days to either pay the debt or to come to an arrangement to you for payment of the debt, failing which the company is presumed at law to be insolvent and can be wound up on application to the Supreme Court.

If an individual or partnership owes the debt, a company owes the debt but it is less than the above statutory minimum or if a company debtor genuinely disputes the debt, then usually the commencement of proceedings will be necessary (and you would need to weigh up the costs and benefits of doing so to make a commercially sensible decision).

If the debt is at least $10,000 and the debt is the subject of a judgment of a court, you can issue a Bankruptcy Notice. A Bankruptcy Notice provides for payment of the debt or a satisfactory arrangement for payment of the debt to be made within 21 days, failing which an “act of bankruptcy” has been committed, entitling you to commence proceedings in for a bankruptcy/sequestration order.

Options for enforcement of judgments also include:

  • Garnishee orders
  • Writ of Execution over property – where the Sheriff sells personal property, land etc
  • Instalment orders

FURTHER INFORMATION

For further information in relation to business succession, estate planning, litigation and dispute resolution or any commercial law matter, contact us on (02) 9521 2455 or email help@mckilloplegal.com.au

 

in Business / Debt Recovery / Dispute Resolution  by 14 Aug 2016 0 comments