Tag Archives: legal

Australian Consumer Law

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Australian Consumer Law (ACL) is an Australian national law that applies to all Australian jurisdictions and industry sectors. As a small business owner, you have obligations.

A more general guide on your legal obligations can be found in our guide on Australian competition and consumer law. This guide aims to look specifically at the ACL’s implications to ensure you understand your obligations and comply.

The Australian Consumer Law (ACL) includes:a national unfair contract terms law covering standard form consumer and small business contracts; a national law guaranteeing consumer rights when buying goods and services; a national product safety law and enforcement system; a national law for unsolicited consumer agreements covering door-to-door sales and telephone sales; simple national rules for lay-by agreements; and penalties, enforcement powers and consumer redress options.

WHY should I care about my legal obligations?

The ACL covers general standards of business conduct, prohibits unfair trading practices, regulates specific types of business-to-consumer transactions, provides basic consumer guarantees for goods and services, and regulates the safety of consumer products and product-related services.

There is significant government legislation associated with this subject, and lack of knowledge is not an acceptable defence. Significant fines apply for breaking the rules to ensure unfair activity does not occur.

WHAT ACL laws do I need to understand?

Australia Consumer Law (ACL)
  • Unfair contract terms – This protects a business or consumer when they agree to a standard contract that is subsequently deemed unfair. For example, terms change, you agree to a price, but the price is changed without notice.
  • Consumer Guarantees – applies to a consumer or business that purchases a product for less than $40,000. The guarantee is that a good or service will meet certain minimum standards. For example, a consumer buys a washing machine for $2000 with a 1-year warranty. After 2 years, the product fails. Under ACL, the consumer can claim that this product should have lasted more than 2 years and should be repaired or replaced.
  • Consumer product safety – As a business owner who sells a product, you must be aware of mandatory standards or voluntary rules around your product’s safety. You will also have obligations around bans or recalls. For example, you cannot sell children’s toys with small detachable parts that could be swallowed.
  • Sales practices – The ACL prohibits businesses from using unconscionable conduct when selling, the unsolicited supply of goods, unsolicited consumer agreements, harassment and coercion, or refusing to provide proof of a transaction when dealing with their customers. For example, you cannot try to trick someone into buying your service nor threaten them or refuse to give them a receipt if they ask for one.
  • Avoiding unfair business practices – The ACL prohibits businesses from engaging in unconscionable conduct, including misleading or deceptive conduct and representations. For example, you cannot do an advertisement with disclaimers that are too small to read. Nor can those disclaimers change the main meaning of that advertisement, for instance, when the ad implies the item costs $50 but a condition in fine print means the real cost is $75.

HOW do I comply with Australian Consumer Law

Unfair contract terms

A contract can include two parties signing a document, agreeing over the phone, clicking an “I agree” button on a web page, or acting according to a contract after indicating acceptance of the contact.

As a small business, you are responsible for upholding contracts and ensuring that the contract is not unfair. Very simply, you cannot change the terms after an agreement is made just because it suits you. A contract could be classed as unfair if you have not balanced the terms between you and the customer. This could be everything is in your favour, or you are abusing your customer’s interests, or the contract could cause detriment to your customer.

Consumer Guarantees

Suppose you sell a product or provide a service for personal, domestic or household purposes. In that case, you are obligated to ensure that product is fit for the purpose it was bought. The important implications of the law is that a warranty end date does not end your obligations. You cannot replace consumers rights, for example, a ‘No refunds’ sign is unlawful, and you cannot have a customer sign a document waiving their rights, nor can you have them sign or agree they will not claim consequential losses from you.

Goods sold to a customer must be of acceptable quality. You must guarantee this to the point that it is considered reasonable that the good should last. Say you bought a TV with a 2-year warranty and after 3 years, it stops working. The TV should have lasted longer than 3 years so a customer could claim repair or replacement under ACL. This period is not set in stone and would be reviewed by the court based on each circumstance. Note a consumer loses those rights if the product failure was caused by commercial use or malicious damage. As a product seller, it may be cheaper for you to repair or replace an item rather than being taken to court by the ACCC.

If a consumer orders a product based on a sample or model, you are obligated to deliver goods that match that sample and specifications.

You have an obligation to provide repairs and spare parts for a reasonable time after a good is sold. Alternatively, you are obligated to provide a replacement.

Suppose the product or service does not meet the consumer guarantee. In that case, they have the right to demand resolution from the supplier (retailer). Note, although the manufacturer is also obligated, it is the selling party’s responsibility to resolve. Thus, you cannot simply expect the manufacturer to handle this for you if you sold it.

From a services perspective, there must be a level of skill or technical knowledge when providing a service and all necessary care must be taken to avoid loss or damage when providing that service. The services must be fit for purpose and delivered within a reasonable time. If you fail to provide this, the consumer can cancel the service and get a refund for work not already done or keep the contract and get compensated for resolution.

Consumer product safety

Under the ACL, Australian ministers can regulate unsafe consumer goods and product-related services by:

  • issuing safety warning notices
  • banning products, either on an interim or permanent basis
  • imposing mandatory safety standards; and
  • issuing compulsory recall notices

These rules relate to personal, domestic or household use or consumption. More information on product safety can be found here.

Your obligations are to sell something that is safe and not banned. This may include how it is made, what it contains, how it is designed, tests it needs to pass and whether warnings or instructions need to accompany the goods. If you do not comply, you may be required to recall your goods at your cost if a consumer suffers loss or damage. As a result, a court can award compensation to cover the losses.

Sales practices

Your business cannot issue an invoice or request payment for good and services that have not been requested. For example, you can not send an advertising invoice to a customer who has not requested advertising, nor can you send someone a book unprompted then demand payment. The maximum fine is $220,000 for an individual and $1.1 million for a body corporate.

If you decide to engage in unsolicited consumer agreements, including door to door selling, cold calling on the telephone, or approaching people in the shopping centre, you must observe certain conditions. These include limited hours for contact with consumers, disclosure requirements when making an agreement, criterion for the sales agreement, including that it must be in writing, supplying goods above $100 value, and on requesting payment during the cooling-off period. The customer has a 10-day cooling-off period to change their mind and cancel the contract. If you do not meet your obligations as part of the contract, the customer has right to cancel in a 3- or 6-month period. Unsolicited consumer agreements can lead to maximum civil and criminal penalties of $50,000 for a body corporate and $10,000 for an individual.

Pyramid selling is illegal in Australia. A Pyramid scheme is where people make money from recruiting participants who pay a fee, and all those in the chain above receive a share of that payment.

If you are selling, you must sell a good at the lowest displayed price or withdraw the product from sale until rectified. Mistakes made in advertising can be fixed by publishing a retraction with similar circulation. You may also not quote a price that is a component or only part of its cost. For example, if a lounge is priced at $500, but the customer is also charged a $20 fee to pick the lounge up at the store they have just purchased from.

You cannot convince a consumer to buy goods or services by promising benefits dependent on other events. For example you can’t offer a customer a discount on the condition that they help you find other customers. The maximum fine is $220,000 for an individual and $1.1 million for a body corporate.

You cannot use physical force, coerce or unduly harass someone for the supply of or payment for goods or services, this includes verbal intimidation. The maximum civil and criminal penalties for harassment and coercion are $1.1 million for a body corporate and $220,000 for an individual.

If you sell goods or services to the value of $75 or more, you must prove that transaction. This could take the form of a GST invoice, cash register receipt, credit card statement, handwritten receipt or receipt number for a telephone transaction. The customer has the right to ask you for an itemised bill, including how the price was calculated, including hours and materials if relevant. The maximum civil penalties for failing to provide consumers with proof of a transaction or not providing it within the required time are $15,000 for a body corporate and $3,000 for an individual.

Avoiding unfair business practices

You must not make statements that are misleading or deceptive as part of your sales or marketing activities or are likely to mislead or deceive. Failing to disclose information also falls into this. A disclaimer cannot be used to counter any of this conduct. If you do mislead or are deceptive, the court may order you to make remedies.

You cannot make false or misleading representations about goods or services when supplying, offering to provide, or promoting those goods or services. For example, this vitamin will extend your life by 20 years. Making false or misleading representations is an offence. The maximum fine is $220,000 for an individual and $1.1 million for a body corporate.

You must not engage in unconscionable conduct within societies norm and expectations. For example, you cannot explain the conditions of a contract and get an agreement in English to someone who does not speak English or might have a disability. The maximum civil penalties are $220,000 for an individual and $1.1 million for a body corporate.

If you decide to make a country of origin claim about your product as either words or an image, it must not be false or misleading. Made in Australia must be made in Australia. The definition of made in Australia is the goods must be substantially transformed in Australia, and 50 per cent or more of the total cost of producing or manufacturing the goods must be in Australia.

HINTS

For more details available directly from the Australian Government, see this page for resources and guides.

SUMMARY – Australian Consumer Law

This document is a Summary of Australian Consumer Law to help you understand the implications. It should be used as informational only. You should read the guides made available by the Australian Government to fully understand its impact. ACL must be adhered to and being in business, you could find yourself in court and subsequent penalties if you do not do the right thing.

How to create a Quote to win business

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If you have not done a quote before or you just want to make yours look a little more professional, then read on. In this guide, we will look at how to create a quote to how to make yours stand out just that little bit more.

A business quote (or quotation) is a document in which you describe the requested products or services and provide your customer with relevant pricing. In most cases, it is written as a response to a request for pricing, when a customer solicits your service or product.

Why should you formally quote a customer?

A quote can be used as a legal document for the price and serves as a contract. This means that in the event of a dispute, you have clear correspondence on what was offered and what should have been provided. If you have quoted verbally or on the “back of an envelope” it is unlikely that will help you in a dispute.

A professional looking quote will also give your business credibility. The customer will have more confidence in you and your ability to deliver.

A quote also enables you to carefully consider your costs of completing a job, so may help you calculate your selling price and more importantly, your profitability.

What do I need to know about quoting?

Quote vs estimate. An estimate is purely that and usually is given when the final cost is unknown due to circumstances that cannot be determined.  An estimate is not a formal contract. As long as it is labelled correctly will not have the same legal obligations as a quote. If you issue an estimate, we recommend you also add the words “Pricing is subject to change”.

Always listen carefully for what the customer has asked for and quote accordingly. If you do not, you run the risk of immediately being discarded. Be careful to quote for only those products and services that you understand and can deliver.

Calculating your quote pricing is tricky.  Overquote and you will not get the business, underquote and you will lose money.

How to create a quote?

If you frequently deal with quotes, you should create a template with prefilled content that you can use to save you time. Your template should be clean looking! It should demonstrate your brand identity to help differentiate you from other quotes the customer may have received.

How to create a quote?

  1. Quotation header

    Reference your company’s name, contacts, ABN number, quotation number and date, payment terms, conditions, and the name of the recipient. The word “Quote” or “Quotation” should be written at the top of the page.

  2. Quotation body

    Describe the goods or services you are proposing, any quantities and a breakdown of the costs.

  3. Quotation footer

    Include the total amount of all items, including GST amount, and if there is any expiry of the quote.  This is where you would also list any preferred payment methods.

  4. Operational section

    Optional is a section for a customer to accept the quote which could be as simple as a space for a signature and date.

  5. Work Schedule

    If there is a work schedule or a timeline of tasks to be completed, you may wish to include this information.

No matter how hard you try, words may not be sufficient to describe your product. This is especially true if it is unique and uncommon in the market. You should consider including a picture or two or a link to a video of your product.

See our guide on getting graphics done for ways of creating a company logo to improve your image.

Following up a quote with a customer might just close the deal.

Hints

If a customer asks for a proposal, then a more detailed document is required that will explain HOW you plan to achieve the work. You would need to demonstrate a full understanding of the customers’ existing problem and offer a specific solution.

You may wish to offer some call to action on your quote to close the deal sooner or encourage the customer to pay upfront.  This might include a discount, a free offer or merely an expiry of this deal (customer feels they may miss out).

Having a reasonable price is only part of winning a quote.  Your reputation goes a long way as does customer service. A simple act like reacting faster to customer requests, especially in providing a quote quickly can make all the difference.

Suggested templates can be found here.

Summary – How to create a quote

A written quote is a legal document that can help solve any disputes.  It shows you run a professional business and clearly outlines costs to a customer for your goods and services. By putting extra effort into your quotes, you may be able to win additional business and make yourself more profitable.

Privacy and Protecting Personal Data

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It may seem harmless that in the process of doing business you collect customer data to transact business or communicate with them.  However, if that data is used without the user’s permission, or worse stolen, you may find yourself breaking the law. This guide will help you understand Privacy and Protecting Personal Data and what you should or must do.

Data protection is to secure data against unauthorised access. Data privacy is about authorised access — who has it and what you can do with it. Data protection is essentially a technical issue, whereas data privacy is a legal one.

WHY should I protect my customers’ personal data?

Apart from the fact that a customer will not be very happy with you, it is the law. You must comply with the Australian government Privacy Act 1988 if your annual turnover exceeds $3 million.

You are responsible for protecting your customers’ personal information from:
  • theft
  • loss
  • unauthorised access
  • modification
  • interference
  • misuse
  • disclosure
If your small business turns over less than $3 million you must comply with the act if you are a:
  • private-sector health service provider
  • business that sells or purchases personal information
  • contractor providing services under a contract with the Australian Government
  • credit provider/credit reporting body
  • residential tenancy database operator

All other small business operators are exempt from the Act however protecting your customer’s data is good business practice.

WHAT types of information are considered private?

Any information that can identify a person and could include:

  • name
  • signature
  • address
  • email
  • telephone number
  • date of birth
  • medical records
  • bank account details
  • place of work
  • photos
  • videos
  • information about their opinions

If you do have a breach of personal information you need to notify both the person it has affected and the Office of the Australian Information Commissioner (OAIC).

HOW do I protect customers personal information?

The following actions will assist with your compliance of the Privacy Act:

  1. Do not collect personal information you do not need
  2. Develop an internal policy to handle and process personal information
  3. Take ownership yourself or delegate to a senior member of staff
  4. Do not share this data with anyone else
  5. Sensitive information like race, religion, health etc can only be collected with individual consent
  6. Ensure unauthorised staff members do not have access
  7. Take reasonable steps to protect personal information from unauthorised access, modification, or disclosure and against misuse, interference, and loss
  8. Destroy or de-identify personal information when it is no longer needed
  9. Develop a plan for a data breach

HINTS

If processing credit card transactions by EFTPOS or e-commerce store you should ensure your network/equipment is secure and encrypted. You should restrict who has access to that data and preferably do not store the card information. A security assessment of cardholder data can be done here.

If you plan to contact customers via direct marketing like an email, phone call or text, post, social media or web advertising you should enable a customer to opt-out (request not to be communicated with).  If the Privacy Act covers your organisation (> $3m turnover) legally you are required to allow a customer to opt-out.

Australian privacy law gives a consumer the right to access their personal information. This includes their health information. This right does not extend to commercial information.

Be sure to read our guide on internet security.

Additional information on privacy and protecting personal data can be found here.

SUMMARY – Privacy and Protecting Personal Data

If your small business has a turnover less than $3 million it is unlikely you will have a legal requirement however for both your customer and your sake it is good practice. If possible don’t keep personal data like credit card details but if you do, ensure it is protected from theft or abuse. It is worth familiarising yourself with the intent of the Privacy Act and taking the necessary actions in your business.

Contractor – using or being one

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Your small business may not be ready to take on an additional employee so a contractor may be a better solution or perhaps you would like to start your own business as a contractor.  This guide will look at both sides and help you understand the implications of using or being a contractor.

A contractor or sub-contractor, freelancer or consultant is a person that provides goods or services under a written contract or a verbal agreement. Unlike employees, contractors do not work regularly for an employer but work as required. Contractors are usually paid on a freelance basis and often work for themselves using their own tools and processes.

WHY should you use or consider becoming a contractor?

By Using a contractor, you can:
  • Increase or decrease workers based on business needs
  • Get fast access to skilled workers for different tasks
  • End contacts quickly with no reason
  • Normally no payments for Superannuation, holiday or sick pay and payroll taxes
  • Save on liability insurance, as contractors must have their own
By Becoming a contractor, you can:
  • Be your own boss
  • Earn more money if your skills are in demand
  • Work the hours that suit you including part-time
  • Test out a company before committing to a full-time job

WHAT do you need to understand about contractors?

Contractors have workplace rights and protections but have different responsibilities relating to insurance, taxation, and superannuation. In Australia, the Independent Contractors Act 2006 in conjunction with the Fair Work Act 2009 protect the rights and entitlements of independent contractors.

Under the Fair Work Act 2009, independent contractors are protected from:
  • adverse action – for example, a business cannot terminate a contract with an independent contractor because they make a complaint to a regulator about their workplace rights
  • coercion – for example, a business cannot threaten to take action against an independent contractor to coerce them not to exercise their workplace rights
  • abuses of freedom of association – independent contractors are free to join, or not join, a trade union or employer group
The Independent Contractors Act 2006 allows independent contractors to ask a court to review a contract because it is ‘unfair’ or ‘harsh’. The court may consider:
  • the terms of the contract when it was made
  • the relative bargaining strengths of the contract parties and, if applicable, anyone acting on their behalf
  • whether there was any undue influence or pressure, or any unfair tactics used against, a party to the contract
  • whether the contract provides remuneration that is less than that of an employee doing similar work
  • any other matters the court thinks is relevant
The court may order:
  • the terms of the contract to be changed (for example, they may be added or removed)
  • the whole contract or part of the contract be ‘set aside’ (that is, have no effect)

All workers in Australia are entitled to a safe and healthy workplace. This means that employers — including self-employed contractors — must comply with the relevant state or territory’s workplace health and safety laws.

Sham contracting is illegal and is when an employer attempts to disguise an employment relationship as a contractor relationship. This is usually done to avoid responsibility for employee entitlements.

HOW do you hire a contractor or become a contractor?

In Hiring a contractor, you should be careful in checking their credentials to ensure they have the right experience, attitude and skills.  You will need to carefully plan how they will integrate into your workflow and ensure you pay them promptly or they may not continue to turn up.  A contractor may not be an employee but you need to treat them as part of the team to get the best result.  Make sure you engage a contractor in a legally binding way in writing and consider what other documents may be required like a Non-Disclosure Agreement. Ensure you keep accurate records of their hours and or completion of set tasks.

In Becoming a contractor, you essentially start your own business. See our guide on starting a business. This process will include writing a business plan which will help you be realistic about things like future income. You will need to keep track of your business so read our guide on Record Keeping as well as considering setting up a separate bank account.
Insurance is important as you most likely will not be covered by your employer so consider taking out liability, income protection and asset (protect your tools) insurance.

If as a contractor you are paid wholly or principally for your labour your employer must pay for your superannuation, if not you should consider making voluntary personal contributions. Be sure to review our guides on Business structure and GST as you may need a separate tax file number and your services will be subject to GST if your business turnover is above $75,000.   If you do not have an Australian Business Number (ABN) your hirer may legally withhold tax at the top rates.

HINTS

Unsure if someone is an employee or contractor? See the Fair Work Table here https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/rights-and-obligations/independent-contractors-and-employees

If your business engages contractors, it’s a good idea to have a Contractor Agreement in place with each contractor you engage. This sets clear expectations about the scope and standard of services to be provided, fees and payment, confidentiality, IP ownership and termination processes. A lawyer can draft a contractor agreement for your business.

Keep track of your contractors’ hours and how much they’re costing you. Use your accounting software to produce reports so you can see whether you are getting value for money. Over time you will discover the right mix of employees and contractors that works for your small business.

SUMMARY – skilled supply of labour and materials

Contractors work for themselves and offer other businesses and individuals a skilled supplier of labour and possibly materials.  Both the contractor and the hirer have flexibility around hours and hirers do not have to provide for holiday and sick pay or payroll taxes. Contractors have workplace rights and protections but have different responsibilities relating to insurance, taxation, and superannuation.

NDA – Non Disclosure Agreements

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Shh can you keep a secret?  Most people cannot.  What if the success of your business depends on a 3rd party and you need them to keep quiet about what is discussed? This is when you need to have either a lot of trust or you have them sign a non-disclosure agreement. This guide will discuss what a NDA is and how to create one.

A Non Disclosure Agreement or NDA is a contract through which the parties agree to not disclose information covered by the agreement. An NDA creates a confidential relationship between the parties, typically to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects non-public business information. Also known as a Confidentiality Contract, Confidentiality Agreement, or Gag Order.

WHY do I need a Non-Disclosure Agreement NDA?

Some of the typical needs for an NDA include:
  • Entering into a business relationship – If you have created a product or service and are looking to sell it to another business, you may need an NDA while you are negotiating the deal.
  • Getting feedback – After developing a product or service, you may wish to run beta testing (trial) and gather feedback from your network or those in your industry.
  • Bring on a new employee – It’s a good idea to have employees sign a document that they will not share company confidential information such as plans, business models, financial or products.
  • Pitching to investors – If your business is looking for investment, you will likely reveal confidential business information when pitching your company. Always insist as they could steal your idea.
  • Asking a competitor to help you on a project and stop them from stealing your designs and ideas and pitching independently.

WHAT would I use an NDA for?

An NDA will cover:
  • A description of the confidential information;
  • Confidential rights and obligations of the parties;
  • Protection of sensitive information;
  • Return of confidential information at the end of the agreement;
  • Obligations regarding the proper use of the information; and
  • Circumstances where disclosure is permitted.

An NDA normally protects ideas, products, app functionality, designs, source code, plans, business models, records, recipes, and any other commercially sensitive documentation.

HOW do I get an NDA created?

An NDA is a legal document but is only as good as the contents. You can get an NDA as
  1. A free template
  2. A purchased template
  3. Written by a lawyer as fit for purpose

Prices increase as you go down the list as does its ability to possibly be successful if you go to court.

HINTS

Once you have an NDA template chance are you will be able to use it again for similar circumstances.

You should consider:
  • How long you want it to last
  • Is it mutual or one way (both parties or only one)
  • Having a specific definition (broad will result in ambiguity)
  • Will a court consider it reasonable
  • Implications if someone will not sign
  • What other steps you need to take to protect your secrets, for example, lock them in a safe
  • Locations it applies to, including overseas
  • All details are correct

SUMMARY – Protect Confidential Information

An NDA will help you protect the information you want to share with 3rd parties.  Templates to create one can be easily obtained but the use of a lawyer will increase your protection.

PLEASE NOTE:  All information provided on this website is general in nature and may not be appropriate to your individual circumstances.  It does not replace advice available from experts such as lawyers, accountants, business advisors, brokers, etc. We further recommend when using these experts you ensure they have the appropriate licenses and endorsements.

Shareholder & Partnership agreement

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You are probably reading this guide because you are at the beginning of your business venture however it could be because a partnership or shareholding has gone wrong.  This guide is all about helping you get that first shareholder & partnership agreement right so down the track there is a clear predetermined plan of how things should happen.

A Shareholder & Partnership Agreement is a legally binding contract between the shareholders or partners of a business. A Shareholder & Partnership Agreement covers the funding, structure, management and direction of the business. It outlines the responsibilities and obligations of the business owners.

WHY should all partners be in agreement?

In the excitement of starting a new venture, it is very easy to put this important task aside. A shareholder agreement is to protect the multiple owners’ investment in the business, to establish a fair relationship between the owners and govern how the company is run.

It is best to put a shareholder and partnership agreement in place when the business is first established.  At this early stage owners should be like-minded and if this is not the case questions should be asked why you are going into business together.

WHAT is in a shareholder & partnership agreement?

The agreement should contain important, specific, and practical rules relating to the business and the relationship between the owners. 

The agreement should (but not have to) include:
  • define who are the shareholders, in what percentage ownership over what term
  • define how important decisions are to be made
  • describe how the business is going to be run
  • indicate if any intellectual property is not owned by the business
  • set out the owners’ rights and obligations including time spent on business
  • agreement on accounting processes and reporting
  • decide how profits will be divided and income paid
  • regulate the sale of shares in the business including full sale and withdrawal or addition of an owner
  • define dispute resolution procedures – if 2 owners have equal decision making decide how will you break the stalemate
  • outline any additional powers of minority shareholder/s so not always overruled on key decisions
  • define what constitutes a breach of the agreement and what action should then take place – possibilities include termination or mediation
  • include restrictions to stop shareholders from starting a new business in competition
  • identify how an owner may exit the business
  • have terms around specific circumstances like:
    • Hiring and firing of employees
    • Who can authorise payments
    • Taking on debt
    • Approving expenses

If a disagreement does occur in the life of the business and there is a clear shareholder agreement it gives a clear roadmap to move forward.

A partnership or shareholders agreement can be drawn up by a lawyer and you will find several providers offer a template-based solution that can be adapted to your specific needs via the internet for minimal cost.

HOW do you deal with conflict?

Conflict will inevitably arise with shareholders at some point in the running of a business. It does not matter how well you know your fellow owners, irrespective if they are a family, friend, or business partner it is best to have a shareholders agreement in place that you can refer to when conflict arises in your business relationship.

A lot of successful small businesses have been known to have shareholders with stormy relationships. A business relationship, whether good or bad, can have a huge impact on whether a company is going to be successful or not.

Decisions should be made through discussion, compromise and ultimately deciding what is best for the business. More progress can be made on working out how to resolve conflict rather than how to win a conflict.

Being a minority shareholder and having a shareholders’ agreement that includes the requirement for all shareholders to be unanimous ensures that you have a say in the important decisions that impact the company.  This could be decisions on:

  • Adding or removing owners
  • appointment or removal of staff
  • taking on new debt
  • changing business operations

However, if all decisions must be unanimous this could cause problems and ultimately prevent your company from carrying out its business.

In a scenario when two owners each own 50% each of the business it is important to have a dispute resolution provision included. Without an agreed procedure to resolve disputes no decisions can be made leaving the company unable to operate.

You can terminate a shareholder agreement in one of 3 ways:
  1. By mutual agreement – the original shareholder agreement should have had a provision on this
  2. Termination by a breach – unless there are clauses for mediation of a breach in the agreement can lead to termination
  3. One owner withdraws – the shareholder agreement should have a provision that maps out this scenario

To force an unhappy shareholder to stay in a business may cause more problems than having a new shareholder who is interested in the business being successful. Shareholders’ agreements will often include rules around share sales and transfers – who shares can be transferred to, on what terms and at what price.

HINTS

Decisions can be specified to be based on equity holdings or unanimous by all owners.

Discussing the worst possible scenarios at the beginning of your business journey and having a roadmap to resolve them will save a lot of headache down the track.  The more comprehensive the better.

Owners need to enter into an agreement voluntarily.

Any new shareholder must be bound by the terms of the original shareholder/partner agreement.

SUMMARY – shareholder & partnership agreement for profit

A shareholder or partner agreement is a legal document that creates a set of rules for the owners to follow when a business is first established. It helps deal with certain scenarios that may occur in the future to reduce the chance of conflict.  Those rules deal with equity, decisions, obligations and the ultimate end of the agreement.  A well legally written agreement can be produced inexpensively from templates or through a lawyer.

Contracts – written legally binding document

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In our everyday lives, we are always making contracts, whether it be for a new mobile phone plan, to have electricity connected, or arranging for a plumber to fix a broken pipe.  In this guide, we will look at what a small business needs to know about contracts and how to write or agree to one that is legally binding.

A contract is an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration. Contracts are at the heart of most business dealings. The agreement may be enforced in court.

WHY should I have a written contract?

A conversation and a handshake is indeed a contract.  If a tradesperson writes a price on the back of a business card and you agree to go ahead with the work then that is a contract.  This is all fine until something goes wrong and a dispute arises.  A handshake cannot be enforced by a court.

A written contract, on the other hand, provides certainty to both parties and should set out what has been agreed. Typical items set out in a contract would include payment, timeframes and materials.

WHAT do I need to know about contracts?

A court will not enforce a non-written contract as they will be unable to prove the existence of a contract or its terms.

Depending on the type of contract being created or agreed to it may be a good idea to have a professional such as a lawyer or business advisor review or write it.

A written contract should always be used when:
  • The contract price is significant enough to affect your business if you don’t get paid.
  • Quality requirements, specifications or specific materials that have to be used.
  • Doubt that the hirer may not be able to pay you.
  • Insurance required for the type of work you are doing.
  • Key terms are used, such as a critical date for the completion of the work before payment.
  • Information must be kept confidential. See our guide on NDA’s
  • Legal obligation requires to have a written contract.

Beyond written and verbal contracts other contact types include:

Standard Form Contracts – is a pre-prepared contract that has most sections already filled out and there is minimal or no negotiation between the parties.  Includes employment contract or insurance agreement.

Period Contracts– is used for business engagements where work is performed from time to time. Popular in building industry for contractors.

HOW do I create a legally binding contract?

For a written contract to be legally binding it must contain four essential elements:
  • an offer
  • an acceptance
  • an intention to create a legal relationship
  • a consideration (usually money).
However, it may still be considered invalid if it:
  • entices someone to commit a crime, or is illegal
  • is entered into by someone that lacks capacity, such as a minor or bankrupt
  • was agreed through misleading or deceptive conduct, duress, unconscionable conduct or undue influence.

A written contract will include conditions that if not met are grounds to terminate the contract and seek compensation or damages.

When negotiating the contract terms make sure the conditions of the contract are clearly defined and agreed to by all parties.

Contracts may follow a structure that can include, but are not limited to, the following conditions:
  • details of the parties, including ABN’s, ACN’s and any sub-contracting arrangements
  • description of the goods and/or services that your business will receive or provide, including key deliverables
  • payment details and dates, including whether interest will be applied to late payments
  • duration or period
  • definitions of key terms
  • ownership of intellectual property rights.
  • treatment of confidential information
  • key dates and milestones
  • required insurance and indemnity provisions
  • exclusivity agreements and restraint of trade
  • damages or penalty provisions
  • renegotiation or renewal options
  • complaints and dispute resolution process
  • termination conditions
  • special conditions

HINTS

Even if a contract is a low value, if it is in writing it removes risk.

You should read every word, cross out blank spaces, negotiate if appropriate and keep a copy of the contract. When negotiating be clear and remain professional.

If you are having some design work done like a logo created, the copyright remains with the designer unless the contract specifies the copyright passes to you.

Small businesses are protected from unfair terms in a standard form contract where it is for the supply of goods or services, the sale or grant of an interest in land, at least one of the businesses employs fewer than 20 people, and the price of the contract is no more than $300,000 or $1 million if the contract is for more than 12 months. https://www.accc.gov.au/business/business-rights-protections/unfair-contract-terms

More details on how to prepare a contract can be found here https://www.business.gov.au/products-and-services/contracts-and-tenders/how-to-prepare-a-contract

SUMMARY – contracts must be accepted

A written contract is a legally binding document that can be used in a court of law.  It must contain an offer, an acceptance, an intention to create a legal relationship, and a consideration (usually money).  The contract will include various conditions that should clearly define the agreement between the parties so there is no confusion on what will occur. If these agreed conditions are not met it is ground for termination and possibly damages.

Register a Company

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In our guide Choosing a business structure, we listed the various choices including starting a company.  In this guide, we will look at the process to register a company which is more complicated than the other business structures.

A company is a legal entity with higher set-up and administration costs. Companies also have additional reporting requirements.
A company is run by its directors and owned by its shareholders.
While a company provides some asset protection, its directors can be legally liable for their actions and, in some cases, the debts of the company.
Companies are regulated by the Australian Securities & Investments Commission (ASIC).
Australian Tax Office

WHY set your business structure as a Company?

There is less personal liability to its owners.

A company is its own legal entity and as such can borrow money, take legal action, and be legally sued by someone else.  As a shareholder of a company whether it be 10% or 100% you are only liable for any unpaid money on your shares.  So in theory they cannot come after your house, however as a director of that company if it is found you are in breach of your legal obligations to that company you could be sued. A company is owned by its shareholders but controlled by its directors.

WHAT you need to understand to register a company

A business name is not the same as registering a company name, they indeed can be identical bar the abbreviation but don’t need to be the same.  See our separate guide on Registering a Business name. However in the case of a company you must register its name as well.  For example you may have a company name “Your Town Fruit Pty Ltd” trading with your registered business name called “Your Town Fruit Shop”.  We recommend you go through the process to determine your company name listed on the ASIC website. https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/company-name-availability/.  A company’s name must show its legal status and include an abbreviation at the end, for example, “Your Town Fruit Pty Ltd”.  The abbreviation relates to the liability of its members.

Full WordAbbreviation
No LiabilityNL
ProprietaryPty
LimitedLtd

HOW to Register a Company?

At this point it is our strong recommendation that you get assistance from a professional. You can easily find them by Googling “registering a company”.  For a minimal fee they will do all the hard work for you based on you answering some questions and providing information. These are usually accountants or solicitors and are known as Private Service Providers.  More details can be found  https://asic.gov.au/for-business/registering-a-business-name/before-you-register-a-business-name/private-service-providers/

One thing you cannot escape as a company director (assuming you make yourself a director) is your obligations to keep details up to date, maintaining records and details on a register and paying the annual fees. Australian companies also require 1 or more directors to reside in Australia depending on the structure.

HINT

The fees to register a company can be found here. https://asic.gov.au/for-business/payments-fees-and-invoices/asic-fees/fees-for-commonly-lodged-documents/starting-a-company/

If you do not go down the Private Service Provider route be prepared to understand and decide on a constitution or replaceable rules, share structures, etc.

SUMMARY – Company means less personal liability

A company structure will reduce your risk of personal liability but is more complicated to establish and maintain.  Using a private service provider is an economical and pain-free way to do the setup.

Ending employment

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OK, you have to fire someone, let them go, end their employment. Maybe one of your key staff has resigned. This can be an emotional exercise on both parts. In this guide we will cover ending employment, what is important for you to understand around entitlements and how to protect yourself from unfair dismissal claims.

Ending employment is an employee’s departure from a job and the end of an employee’s time with an employer. Termination may be voluntary on the employee’s part, or it may be at the hands of the employer.
Unfair dismissal is when an employee is dismissed from their job in a harsh, unjust or unreasonable manner.

WHY will someone leave your employment?

The most common reasons employment ends are:
  • resignation
  • redundancy
  • termination or dismissal

Resignation is when someone decides to leave on their own accord.  It is their decision and you cannot reject a resignation.  The most common reasons for people to leave are insufficient pay or unfair pay practices, lack of honesty/integrity/ethics, poor manager, lack of work-life balance, and unhealthy/undesirable culture.

Redundancy occurs when an employer either becomes insolvent or bankrupt or the job function is no longer needed. This is a tough decision especially if you are letting go of a hard-working and loyal employee.

Dismissal is when you let someone go for poor performance, conduct or changes to operational requirements.

WHAT is important to understand about resignation, redundancy & dismissal?

There are different rights, obligations and legislation that come as a result of ending employment.

Your obligations as an employer will depend on whether you are under the state or national industrial relations system.

Notice periods

You must provide a notice period to an employee when ending employment except for some cases of dismissal. The length of notice will vary based on their length of service, type of employment, award, agreement or employment contract, and age. You can have the choice to let the employee work their notice period or you can pay them out (known as pay in lieu of notice). If you pay them out, they must be paid the same amount as if they had worked to the end of the notice period.

During this notice period, the employee may take annual leave only if you approve it and sick leave with sufficient evidence.

Notice periods do not apply to employees who are: casuals, employed for a specific period or task, do seasonal work, fired because of serious misconduct (such as engaging in theft, fraud or assault), and daily hire working in the building and construction or the meat industry.

Employee entitlements

You must pay an employee all their entitlements when employment ends. These may include:

  • outstanding wages
  • accumulated annual leave
  • accrued or pro-rata long service leave
  • redundancy pay
Genuine Redundancy

Some businesses have wrongly used redundancy to unfairly dismiss an employee. According to Fair Work Australia:

A genuine redundancy is when:

  • the person’s job doesn’t need to be done by anyone
  • the employer followed any consultation requirements in the award, enterprise agreement or other registered agreement.

When an employee’s dismissal is a genuine redundancy the employee isn’t able to make an unfair dismissal claim.

A dismissal is not a genuine redundancy if the employer:

  • still needs the employee’s job to be done by someone (eg. hires someone else to do the job)
  • has not followed relevant requirements to consult with the employees about the redundancy under an award or registered agreement or
  • could have reasonably, in the circumstances, given the employee another job within the employer’s business or an associated entity.
Redundancy Pay

If someone is made redundant, they will be entitled to redundancy pay and special taxation rates will apply to those payments. https://www.fairwork.gov.au/ending-employment/redundancy/redundancy-pay-and-entitlements
https://www.ato.gov.au/Individuals/Working/Working-as-an-employee/Leaving-your-job/Redundancy-payments/

Unfair dismissal

You must have appropriate policies and procedures in place to manage employee performance. Terminating or dismissing an underperforming employee must be done in a manner that is fair, reasonable, and just.

HOW do you ensure you have terminated an employee correctly?

Small businesses with fewer than 15 employees have greater abilities to end employment via dismissal. The Small Business Fair Dismissal Code provides a framework for dismissal to ensure the procedure is fair. It also provides small business owners with some level of protection against unfair dismissal claims.

Under the Code an employer can dismiss an employee without notice for serious misconduct includeing theft, fraud, violence and serious breaches of occupational health and safety procedures.

In other cases, the small business employer must warn the employee a reason that he or she is at risk of being dismissed if there is no improvement. The reason must be a valid reason based on the employee’s conduct or capacity to do the job.

A small business employer will be required to provide evidence of compliance with the Code if the employee makes a claim for unfair dismissal to the Fair Work Commission, including evidence that a warning has been given. Evidence may include a completed checklist, copies of written warning(s), a statement of termination or signed witness statements.

The small business employer must provide the employee with an opportunity to respond when a warning is given and allow the employee a reasonable chance to rectifying the problem. Rectifying the problem might involve the employer providing additional training and ensuring the employee knows the employer’s job expectations.

An employee who is on a probation period is not likely to have worked the minimum period to qualify to make an unfair dismissal claim. The Fair Work Act 2009  indicates that an employee must be employed for a minimum of six months, or 12 months if the employer is a small business with fewer than 15 employees to make an unfair dismissal claim.

More details and a checklist can be found here. https://www.fairwork.gov.au/ArticleDocuments/715/Small-Business-Fair-Dismissal-Code-2011.pdf.aspx

Those businesses with more than 15 employees’ details around unfair dismissal can be found by visiting Fair work Australia. https://www.fairwork.gov.au/ending-employment/unfair-dismissal

HINTS ending employment

You should always treat people with respect and simply put yourself in their position and treat them how you would expect yourself to be treated irrespective of the circumstances.

An exit interview can be a great way to understand more about your business. This could help you measure morale, see what needs improving, and understand how well they were managed.

If someone is leaving for a better opportunity be happy for them and thankful for how they have helped you to date.  Be proud that you may have helped them to the next step.

SUMMARY –  ending employment via dismissal

People who leave by their own accord or others that you must remove have certain entitlements. The Small Business Fair Dismissal Code provides a fair framework allowing greater abilities to end employment via dismissal.

It is critical you perform this process correctly and follow the rules.  If you are not experienced in this area we advise speaking with an employment lawyer or at the very least visit the Fair Work website for further clarification. https://www.fairwork.gov.au/ending-employment