There are numerous aspects to consider when setting up a small business. Among other things, legal documents are often overlooked by small business owners. However, these legal documents protect you and ensure that your business complies with legal requirements.
Although the legal documents required may vary depending on the type of business, certain essential documents are necessary for most small businesses.
Business Structure Documents
One of the most critical decisions a small business owner must make is choosing the right business structure. While many factors go into choosing the right structure, understanding the documentation for your chosen structure is crucial.
The business structure you choose can make the difference between the success or failure of your small business. A suitable business structure ensures that your business can operate efficiently and effectively from day one. It provides a solid foundation for growth and protects you from future legal and financial troubles.
Each business structure requires different documentation. Therefore, it is important to understand what documentation is necessary to ensure compliance with legal and tax requirements.
For example, if you choose to operate as a sole trader, you must register for an Australian Business Number (ABN) and your business name. You must also keep accurate records of your income and expenses and file a personal tax return each year. However, if you choose to operate as a partnership, you need a partnership agreement that outlines each partner’s profit-sharing amongst other things.
On the other hand, if you decide to set up a company, you need to register your company with the Australian Securities and Investments Commission (ASIC). You also need to appoint directors and company secretaries, and create a constitution that outlines the rules for managing your company. Additionally, you will need to issue shares to shareholders and maintain a register of members.
Understanding what documentation is necessary for your chosen structure can help protect your business and ensure its long-term success. Proper documentation can also help establish clear guidelines for managing your business and resolving disputes that may arise.
Non-Disclosure Agreement (NDA)
Starting a small business is an exciting and risky endeavour. As a small business owner, you invest countless hours and significant resources to bring your vision to life. However, every step of the way, you also face the risk of your valuable ideas and confidential information being stolen or misused by competitors. For this reason, a Non-Disclosure Agreement (NDA) is crucial for any small business owner in Australia.
An NDA is a legally binding agreement that restricts the disclosure of confidential information to third parties without your consent. It’ is a valuable tool for protecting your intellectual property, trade secrets and other sensitive information from competitors or other parties who may try to exploit it to their advantage.
Example of how an NDA can help small businesses
Imagine you are in the process of developing a new software application for your small business. You need to hire a programmer to help you with the project. However, you are concerned that the programmer might steal your idea and use it for their own benefit. In this case, an NDA can ensure that the programmer keeps your idea confidential, and does not share it or use it for any purpose other than working on the project for your business.
An NDA can also help build trust with potential investors, partners, or employees by showing that you take confidentiality seriously. It can also prevent misunderstandings or disputes by setting clear guidelines for the use and disclosure of confidential information.
Another example of how an NDA can help small businesses
Imagine you are a small business owner who has developed a new product you plan to launch soon. You want to pitch your product to a potential investor or partner. However, you are concerned about protecting your intellectual property.
By having a signed NDA before sharing confidential information about your product, you can show the potential investor your product and have confidence that your idea is safe. It also shows your commitment to protecting your intellectual property.
The NDA can also establish clear guidelines for the use and disclosure of confidential information, preventing misunderstandings or disputes that may arise in the future. For instance, the NDA can state that the potential investor cannot use confidential information for any purpose other than evaluating the investment opportunity in your business.
Without an NDA, you risk losing control of your confidential information and the competitive advantage it provides. A breach of confidentiality can result in lost revenue, legal disputes, and damage to your reputation.
Employment contracts are an important legal document for any small business in Australia, regardless of its size or industry. These contracts are legally binding agreements between an employer and employee that set out the terms of the employment relationship.
Employment contracts protect both the employer and the employee and set out their respective rights and obligations. For example, an employment contract can specify a particular time frame for an employee’s contract that can help you plan and budget accordingly.
Employment contracts can also help you avoid costly legal disputes. They can set out terms of the employment relationship, such as pay, leave entitlements, and termination procedures.
In addition, employment contracts can help ensure compliance with relevant laws and regulations. Australian employment law requires employers to provide certain minimum leave entitlements to employees, such as annual leave, and sick leave. An employment contract can ensure these entitlements are clearly set out and adhered to.
Another way employment contracts can benefit your small business is when you want to terminate an employee. Without a well drafted employment contract, it may be difficult to justify the termination, leading to legal disputes and potential compensation claims. However, with a well drafted employment contract, you can outline the circumstances under which termination may occur, and ensure that the employee is aware of the reasons for their dismissal.
Business Licenses and Permits
Starting a small business in Australia requires obtaining various licenses and permits to legally operate the business. All these licenses and permits are important. They ensure that your business complies with relevant laws and regulations in Australia.
For example, if you plan to open a cafe, you require a food business license issued by the local council. This license ensures that the business complies with food safety standards and regulations.
Similarly, if you plan to operate a construction business, you require a building license to ensure that the business complies with the building and construction standards set by the government.
Obtaining the necessary licenses and permits can also help build credibility and trust with customers and investors. It shows that the business operates legally and is committed to providing safe, high-quality products or services. It also helps avoid legal complications or disputes that may arise due to non-compliance.
Any failure to obtain the necessary licenses can result in hefty fines or even the closure of the business. This can also damage the reputation of the business, which can be difficult to recover from.
A website can help small business to build a strong online presence and to reach a wider audience. However, a website is not just about creating a visually appealing design and posting engaging content. It’s also about making sure that it has all the necessary legal documents that protect your business.
Website documents such as terms and conditions and privacy policies can protect your small business from potential legal issues. Terms and conditions, for example, can help avoid disputes with customers over issues such as refunds, returns or warranties, as customers have agreed to these terms before making a purchase.
How Prosper Law Can Help?
Prosper Law is Australia’s online law firm. We provide legal advice to businesses and individuals across Australia. Our areas of legal practice include contracts, eCommerce, publishing, legal counsel and employment law.
If you need to talk to a small business lawyer, get in touch today.
Contact the team at Prosper Law today to discuss how we can provide you with advice for a fixed fee or at affordable hourly rates.
Micaela Diaz | Solicitor
P: 1300 003 077