Business Start Up

Small business protection from unfair contracts

The Australian Consumer Laws are designed to protect an individual against unfair practices. Under the proposed Unfair Contracts, some of these protections will be extended to protect small businesses as well (who don’t fall within the definition of consumer). The unfair Contracts Act is designed to make it harder for a business to enforce certain standardized contracts, or at least certain clauses in those contracts, against a small business. The kinds of terms that will be in the firing line include:

  • Clauses that allow one party to increase the price without allowing the other party to then terminate the contract.
  • Clauses that allow a party to vary the terms of the contract without informing the other party and allowing them to then terminate the contract.
  • Clauses that allow one party but not the other to terminate

Will these protections apply to franchising? Yes, if the upfront price of the contract is either less than $100,000.00 or if the contract duration is 12 months or more, the upfront price is no more than $300,000.00. Given the vast majority of franchise agreements are presented or a ‘take it or leave it’ basis and often do not allow the individual or small to terminate the agreement before the term, there could be a flurry of activity as franchisors update their agreements. Other typically clauses in franchise agreements that allow the franchisor to buy back the franchised business at an unfair amount or to reduce the obligations they offer to provide are likely to be now enforceable.

This Act was passed in October 2015 by Parliament and is expected to come into effect by the end of 2017. If you use a standardised contract, such as terms and conditions, now is the time to review your contracts. If you find clauses that give you all the power and your customer- be they an individual or a small business- none, you might need to re-phase the clause or perhaps get rid of it completely. Ask yourself if that clause is necessary to do business with you and protect your legitimate interests. If you have been using a standard contract “borrowed” off another business or maybe downloaded from www.whoknowswheres.com, it’s a great time to chat to us about getting a contract, or, terms and conditions that complies with these new amendments and is tailor made to your industry and your business.

The amendments to the Unfair Contracts bill mean, if you are a small business you will soon have another string on your bow if you were to end up in a dispute over a contract.

For advice on your business contracts click here to contact Coutts.

Different Business Structures

If you are buying a business or starting a business, you will need to make a decision on the type of Business Structure you need.  Firstly you need to know what the different Business Structures are and what suits your business.

Sole trader

A sole trader is the simplest business structure you can have. It is easy to set up and easy to wind up. Many favour this structure as there is less formal paperwork required than other structures and you generally have complete control over your business. One major risk is that you are personally liable for any debts or liabilities of your person and this is a limitless liability. This means there is no distinction between your business property and your personal property. It can also be harder to sell a business as a sole trader as potential purchaser’s may find it hard to see value in the business once you have gone (a reasonable conclusion!). If you start as a sole trader it is easy to change structures, which many do as their business expands.

Partnership

Once the hallmark of an accountants practice or a firm of lawyers, partnerships are less common than they used to be. However, partnerships still have their place in the modern business world. It still suits 2 or more people who want operate a business together and want a more flexible structure. As with sole trader, liability and responsibility for debts of the business (even if the business has a separate name) is shared equally by the partners…if one partner disappears the other can be left with all of the debts. Partners can split profits as income and offer partnerships to high performing employees. Whilst not compulsory, any partnership should have a written agreement clearly setting out how the partners want the business to operate and what they will do if a dispute arises.

Company

Commonly a company is a Pty Ltd (a proprietary limited) company. A company is responsible for its own obligations and debts. Shareholders are not responsible for company debts. Directors of a company are only liable for company in a limited circumstances. A company has higher set up costs then partnerships and sole traders and has ongoing obligations and reporting requirements with ASIC. Some information regarding the company, such as its directors, shareholders and registered office is publically available.

Trust

Trusts can often offer the highest level of asset protection for an individual in business. Trusts can also be flexible in how they distribute income to beneficiaries so there can be some tax advantages. Details of trusts are not generally publically available and so offer more privacy then a company. However, they can be expensive to set up and have ongoing reporting requirements (so your accountant will love it!). The complex structures of trusts can make it harder to use loans and financing arrangements

Which structure suits me?

As shown above each structure has positive aspects and negative aspects. Different models suit different types of businesses. An accountant is the best person to advise on which structure best suits your business and we can prepare the necessary documents to put those structures in the place.

For any further advice or legal assistance on this issue, please contact us at Coutts on 1300 268 887.

How to buy a business

If your New Years Resolution is to buy a business you might be surprised to know that buying a business can be quite a complicated process, depending on what you are buying and how you are buying it. That's not to say you shouldn't do it, if you have had a dream to buy a business, it is definitely worth doing, however getting the right advice will help you to make the best decision on what to buy and the process to buy a business. Coutts has expertise in advising clients on buying and selling businesses, including franchises, Pty Ltd companies and Sole traders. We can also advise you on the best structure to use to buy a business- you don’t need to keep the structure you are buying.

If you are buying an established business you need to first determine what exactly you are buying- stock? Equipment? A registered business name? In some cases, you might also be buying debt, employees with long service leave entitlements and a bunch of creditors you have no chance of pursuing.

A properly prepared Contract for Sale of Business will note down everything included in the sale and will also set out the conditions that you are buying the business on. Making sure the Contract is correct can involve what seems like a lot of “to and fro” between the solicitors, however, it’s the contract that protects all parties so it is vital it is correct. Even if both the seller and the buyer have agreed on the big picture items, such as the price and the date for handover, there are lots of smaller details that your solicitor will confirm, such as:

  • Are you buying stock? At what value?

  • Is the equipment included in the sale or is it lease?

  • Are any of the employees staying on after the sale? Do they have long service leave entitlements about to crystallise?

  • Do you need a licence to run the business?

  • Is the soon-to-be former owner prevented from opening up a competing business nearby?

Do you know you cannot buy a lease? If a business operates in a leased premises, that lease must be either assigned (transferred) to you, or, a new lease will be offered. Bear in mind it is up to the landlord to decide to you give you a lease, it is not up to the seller. What will you do if you buy a business, but cannot get a lease on your terms? It is standard for the incoming tenant to pay the landlord’s legal fees (in addition to their own) associated with transferring the lease or obtaining a new lease.

Do you know you need to pay stamp duty on purchases of businesses? You may also need to pay Capital Gains Tax and GST.

Buying a business can be an exciting time when you finally become your own boss. But there is also a lot that can go wrong. You need a trusted, legal adviser to make sure that you are getting everything you think you are getting and leaving out the things you don’t want. You need enforceable contracts to protect you if things go pear shaped. You need to understand your lease. You need to be fully aware of the financial circumstances of the business and know that all of its debts are paid. Buying a business with unpaid tax debts, pending lawsuits and old stock would be a costly purchase indeed. Good advice is often worth far more than it costs and when you use a solicitor you are paying for their expertise and your peace of mind.

For any further advice or legal assistance on this issue, please contact us at Coutts on 1300 268 887.

What situations can cause franchise disputes?

What do pizza and petrol have in common?At the moment there are two big businesses making headlines for franchise disputes- Pizza Hut and United Petroleum. Around 80 owners of Pizza Hut Franchisees are currently in the Federal Court claiming the $4.95 pizza range the franchisor has required them to sell is too cheap- they cannot make any profit and remain in business. Part of their argument is that the franchisor is not acting in their best interests and it is unconscionable to require the franchisees to sell pizzas at such a low rate. Initially unsuccessful in obtaining an order to stop the requirement to sell the cheap pizzas, the matter is now chugging along towards a final decision. It is expected that the judgment, whomever the Judge agrees with, will provide much needed clarity on exactly what kind of care the franchisor owes to the franchisee.  

A more recent conflict to emerge involves a franchisee of United Petroleum. While in some respects it is hard to imagine not turning a profit from petrol, the franchisee is claiming that he was required to sell gas bottles and confectionery at a high price and was forced to change electricity suppliers that charged a much higher price. United was able to terminate the franchise agreement due to Mr Nijhawin’s failure to pay electricity bills. In speaking to the ABC’s news service, the franchisee said “We're devastated, totally. Financially, emotionally, physically…we're finished,"[1].

A lawyer representing two other (now former) united Petroleum franchisees, claims that it is in the interests of United Petroleum for a franchisee to commit a breach, so they can then take back the business and re-sell it to a new franchisee, netting around $145,000.00 each time the business changes hands[2]. Another disgruntled franchisee commented that his business struggled because United dictated what products its franchisees sold and at what price, including United Petroleum home branded products[3]. He shut up shop in March 2015.

If you are considering a franchise you must, must, must fully understand the franchise document. You need to be aware of clauses that allow the franchisor to dictate your resale price. If you get caught in the cross fire of a pricing war, as is currently raging between Pizza Hut and Dominos, your business could be the first casualty. If the franchiser dictates your supplier and you can get a better deal elsewhere- what are your rights to go elsewhere? Read between the lines- is this document passing on all the risk of running the business solely to you, without giving you the power to make decisions that impact on its profitability? While the franchising model of business can be a profitable way of running a business, often enjoying instant brand recognition, training, support and extensive marketing, as with most of life’s decisions, your decision to buy a franchise must be an informed decision. Coutts have experience in reviewing a variety of franchising documents as well as acting for parties in franchising disputes.

If you are thinking of starting a franchise business. Coutts Solicitors is hosting a FREE Webinar on Monday 7th September 2pm with the ABC's of starting a business. Our Commercial Law expert Adriana Care can help you decide the best way to set your business up, to be a success from the start!

To register for the ABC Business Start up Webinar click on the link:

https://attendee.gotowebinar.com/register/4031324567032270850

or if you would like to talk to one of our business lawyers call

1300 268 887

for a free initial consultation.

Legal checklist for new businesses starting up

Starting a business can be an exciting beginning to the world of being your own boss.  Entering the world of entrepreneurship can also be stressful and somewhat daunting.  When establishing a business, new owners often run into mountains of legal forms, rules, regulations, licensing, or other policies that can be confusing and time consuming. Failure to understand and comply with these policies can be catastrophic, and sifting through the legal jargon can be complicated. Here we provide you with a basic step-by-step checklist to ensure that your legal needs are met.

Step One: Setting up Your Business

The very first legal obligation of any business is to determine which legal structure the company will take. For example, if you’re selling fresh produce out of your garage, are you a sole proprietor or do you have a partnership with another farmer?  If you have a small mechanic shop downtown does that make you a corporation? This decision is essential because laws governing many aspects of the business vary depending on its legal structure.

Step Two: Licensing

Secondly, all new businesses need to be certain they have all the licensing and permits necessary.  Permits required for new businesses are different depending on the type of business. If you open a hair salon in your home you may need an occupational license.  If you open a new family restaurant, you may need a building permit or a sales permit.   Without the correct operating permits and licensing, your business may be shut down before it even begins.

Step Three: Protecting Your Name

The name of your business can be your most valuable asset.  It is on every business card, marquee, logo, and billboard. It is important to register the business name to legally identify you to your customers and differentiate yourself from your competitors. It is important to note that registering a business name does not necessarily prevent others from using the same name, only a trade mark can provide that exclusive right. We can provide the assistance to not only register your business name, but protect it from being used by anyone else as well.

Step Four: Establishing the Fine Print

Because of all the complications, changes and details that go into a business agreement, it is important to start off right with detailed and easy-to-understand agreement between owners and customers. For example, if you own a boutique shop, what is your return policy on faulty goods? If you provide a cleaning service, what guarantees are you prepared to give and what are your trading terms if a stain won’t come out? This is often referred to as the “fine print”. Agreements on paper hold people accountable, dictate responsibility and can shape the outcome of the business. It may be a policy posted on a company website, printed on the back of a receipt, or written in a customer contract.  The best way to write and establish effective terms of trade is to have the assistance of a solicitor to help you with the fine print.

Step Five: Protecting Yourself

If you are starting a new business, chances are you have some intellectual property. Intellectual property includes anything that you create.  It might be a new invention, a unique design, writings, or trade secrets. It is important to protect these innovations with a patent, trademark, or copyright.  Navigating the process of obtaining any of these on your own can be extremely difficult.  We can provide the help you need to protect you from others who may try to imitate or duplicate your product or service.

Step Six: Employee Basics

Employees are the workhorse of any successful company, to get the best out of your employees, it's important that you understand the obligations as an employer. This may include paying correct (or above average) wages, providing additional benefits and ensuring safety in working conditions. We can help prevent or defend you from an employee lawsuit that could cause permanent damage to your new business.

Step Seven: Tax Time

Taxes are often thought of as a dirty word, but we are here to simply your business taxes in a way that makes sense.  New business taxes include three basic areas: federal, state and local tax.  Federal Taxes include the Goods and Services Tax, Pay As You Go withholding tax and Fringe Benefits Tax. State government taxes include payroll tax, land tax, duties and debits tax. Rates vary from council to council around Australia, so it’s important to have a solicitor from Coutts assist you in this process to be sure you accurately complete your registration, taxation, and reporting.

At Coutts, we often deal with start-up businesses who struggle with the legalities of getting up and running. We understand the stress and responsibility that comes with starting your own business and we are here to help alleviate some of the burden. Contact us to speak with one of our experts to give your business the strong foundation necessary to be successful for years to come.