One of the most overwhelming elements of starting a small business for most people is the need to be across the number of different types of documents and agreements that you may need to successfully run and protect your business. Depending on the type of business you are operating, setting up these documents alone can be very time consuming and difficult to do if you don’t know where to start. This article looks to simplify and clarify your thinking surrounding the documentation of your business.
Agreements between owners
If your business has chosen to operate under any business structure other than a sole trader structure as discussed in article 1 of this series (click here to read more on business structures), then agreements between owners need to be a priority. Having the correct agreements in place at the early stage of your business may prevent disagreements between owners and allow for future flexibility.
Shareholders agreements
Where there are multiple owners under a company structure a shareholders agreement is likely needed, although not specifically required under the Corporations Act. A shareholders agreement can set out the rules of how to deal with the following:
- What decisions can be made by one person and what decisions requires an agreement between owners?
- What class of shares does each of the owners hold including whether all voting rights equal?
- What happens when there are disagreements on business direction?
- What is the dividend policy of the company including what dividends are paid and when?
- What happens to an owners share when they pass away?
- What happens if an owner wants to leave the business including notice requirements and any potential buy back of shares?
- Is there any restraint of trade on a business owner if they leave the company?
Keep in mind that if later on the company would like to add additional owners, a deed of accession also known as a deed of adherence can be used to bind future owners to the shareholder agreement.
Unit holders agreement
In the event that a unit trust is used in your business structure, a unit holders agreement will also be needed in addition to the trust deed which sets up the trust. The unit holder agreement acts as a contract between the unit holders of the trust and the trustee and includes important details on matters such as:-
- The structure and governance of the trust;
- Duties and obligations of the unit holders;
- How the trust is funded;
- Means of dispute resolution in the even of disagreement.
The agreement can be varied later on in accordance with any drafted variation clauses if there are any significant changes to how unit trust needs to be structured.
Business premises agreements
Leasing
As was discussed in part 2 of this article series (click here to read), whether or not to lease is an important decision any business needs to make. In the event that your business chooses to lease a premises, receiving legal advise on the terms of the lease is critical to ensuring you are aware of what you and your business is signing up for under the lease.
Labor agreements
Whilst small business can take many forms including being a one person operation, a large number of small businesses opt to engage labor to assist with the work load. There are two key ways of engage labor which are further discussed below.
Employment agreements
Employment agreements are critical if you are looking to engage someone as an employee. Whilst the idea of a handshake agreement is sometimes the most attractive option for some, an employment contract is recommended to ensure that you as an employer are meeting your legal obligations. Without an employment contract setting out the terms of the employment relationship, your business is not as well protected again a number of claims that could potentially be made against you in the future. An expertly drafted employment contract for your specific needs goes a long way in protecting your interests.
Contractor agreements
Contractor agreements are another tempting option for small business owners who are looking for labor, however do not want the added requirements of an employment relationship. An independent contractor is someone who provides their services negotiating their own price and can work for multiple people at a time. There are a number of other factors that would be considered if the relationship was ever called into question which may see the arrangement be classified as an employment relationship. If contracting of this manner is done so recklessly or to the knowledge of the business it can be known as sham contracting which is illegal. Gaining legal advice on the nuance of your engagement is the best way to avoid sham contracting.
Intellectual property
Non-disclosure agreement
Referred to in short as an NDA and sometimes known as a confidentiality agreement is a legal contract between two parties which ensures that sensitive information is not used or disclosed by the party gaining access to the sensitive information. The NDA can be used in a number of circumstances including:-
- When seeking investors to protect the information you/ your business discloses in the course of seeking to obtain capital;
- When engaging external firms such as marketing firms or manufacturers if the information they are becoming privy to is of a sensitive nature;
- When looking to add additional business owners or partners; and
- To protect business information which is critical to its operation as there are no time limits unlike other forms of intellectual property.
IP license agreement
IP license agreements are needed when a business is using, but does not own another businesses intellectual property. There are a number of different license agreement types including both exclusive and non-exclusive license which respectively either grant exclusive ability to use the IP, or not.
Terms and privacy
Terms of use and Terms and Conditions
When operating an online business it is important to have terms of use and terms and conditions to ensure compliance with Australian Consumer Law. These virtual documents operate as a contract between you and the customer. These documents are to be drafted in a manner that protects your interests to minimise your businesses exposure.
Terms of use relate to how people can interact with your website and its content even if they are not purchasing customers. This document often will state who owns the IP and who is able to use that IP and in what manner.
Terms and Conditions on the overhand more particularly pertain to people who purchase your goods or services from your site. This document covers important points such as delivery, repairs, refunds, payments and disclaimers, many of which derive from Australian Consumer Law.
Privacy policy
Privacy policy documents are becoming increasingly important due to the digital age of information. A privacy policy document inform people on the information your business collects, how the information is stored, who has access to the information, whether third parties have access to it and how the information is used. Privacy policy documents are critical to ensure that you comply with privacy law legislation.
If you would like assistance with the specifics of any of the above documents and how they may relate to you and your businesses needs, please contact the Robertson Hyetts team to help you get started on your business journey on (03) 5434 6666 in Bendigo or (03) 5472 1588 in Castlemaine.
