The Right Business Structure to Protect Your Assets

The Right Business Structure to Protect Your Assets

The Right Business Structure to Protect Your Assets

Once you have made the decision to operate your own business, choosing the correct structure is the next step. Keep in mind that your business structure can change if your business grows in a direction that would suit a different structure. It makes sense to seek legal and financial advice before getting started, so you can tailor your business structure to your unique circumstances.

In Australia, your main options for establishing a business are:

  1. Sole trader
  2. Partnership
  3. Joint venture
  4. Company
  5. Trust

Getting a business name is not setting up a business, it is just registering a business name. We’ll discuss that a little more at the end, for clarity.

In deciding which option would best suit you and your business ideas, think about the following:

  • Your existing assets, income, tax and other ownership structures
  • The simplicity of the new structure and your initial set up costs
  • The type of business you would like to operate and the size of the business
  • The likelihood and speed of business growth and the requirements for investment
  • The tax impact upon the business and on you
  • The type of management and control levels required to operate successfully
  • The number of people involved in the management or ownership of the business
  • The degree of flexibility required to adapt as the business evolves and expands or moves in a new direction to first planned
  • The potential risk of the new structure failing and what impact that could have on you
  • The costs and ease of ending the business if it doesn’t turn out

Let’s have a look at potential business structures in light of the above factors.

1. Sole Trader

A sole trader is a very simple business structure and there are minimal set up costs involved for you as the business owner. You will need to register for an Australian Business Number (ABN) in your own name.

If trading under your own name eg. “Harper Lee Consulting” then you don’t need to register a business name. But if you want to trade under another name “Awesome Consulting” then you will need to register a business name. You are still the business, it just has a name that is not your name.

You will bear the responsibility over all of the business functions and will be completely personally liable for all of the debts that the business incurs.

If protection of your personal assets is important to you then this type of business structure might not be the most suitable for your needs. If you own a home or an investment property in your own name and someone sues the business, they are suing you and your property is on the line.

A sole trader business can have quite limited growth potential as it is heavily reliant on the owner and often can consume vast amounts of an owner’s time and resources. Even as a sole trader, you can employ other people, but the business is still intimately associated with you.

A sole trader business will pay tax at the personal tax rate applicable to the business owner.

It is relatively easy to end a sole trader business and cease trading, provided any debts of the business are paid in full.

A good example of a sole trader business could be a business consultant, a freelance writer, an at home hairdresser or a tradesman such as a painter.

2. Partnership

A partnership is similar to a sole trader, except it involves more than one owner. It trades under a registered business name and a partnership can comprise of owners with similar skills (eg. business brokers) or owners with complimentary skill-sets (eg. a graphic designer and a website developer).

Like sole trader businesses, partnerships are easy to establish. You simply register an ABN naming each of the partners in the application. It is also wise to have a partnership agreement prepared to protect the interests of everyone involved, while everyone is still friends and the business is working well. Partnership break ups without a written agreement are a bit like a divorce and can be messy and expensive.

Traditionally, law firms and accounting firms were structured as partnerships.

We’ve seen law firms dissolve without ever having had a partnership agreement and all the profits left in the business were spent on attempting to resolve disputes between the partners when it came to an end.

Partnerships are better for whole of business long term ventures between people. They are not really suited to short-term, part-time enterprises.  The number of partners can vary and can be comprised of individuals, or companies, or trusts.

Each owner pays tax at their own individual rates, depending on their share of the partnership profits. Partners don’t have to hold equal shares and can be split depending on the contributions of the partners. A partnership will require the agreement of all parties if the ownership structure or members are to change, and it is possible that a new ABN will be required if partners change.

When a partnership is working smoothly, it can be a great vehicle to operate a successful business. When a partnership is affected by personal differences between the owners, it can impact quite considerably on the successful business operation. Each partner is 100% liable for all the business debts and their own personal assets can be at risk if the partnership cannot repay its debts or taxes. This is the case even if the partner had nothing to do with incurring the debt in the first place.

We’ve seen partners in business lose their home because one of the other partners committed fraud through the partnership and went to jail, without being able to pay back the missing money. The people owed money were entitled to chase the other partners in the business to get paid, even though they knew nothing about the fraud.

3. Joint Venture

A joint venture is usually set up by a written joint venture agreement between the parties for a particular purpose or project. It is a good structure for operating a specific project instead of continuing indefinitely. It can vary how many entities are involved and can be comprised of individuals, or companies, or trusts.

It is best to seek legal advice before signing a joint venture agreement to ensure you understand your contribution to the venture, what happens when things change during the project and to ensure you are adequately protected if the joint venture is not successful.

A joint venture helps to grow your business through collaboration with other entities that have complementary skills or financial resources. The structure can vary depending on what you want to achieve, the governance type and obligations as well as the division of profits and losses to the parties. The agreement should also contain the process for disagreement or dispute resolution, if the parties’ relationships break down.

Each of the joint venture members are responsible for the profits, losses and costs involved in undertaking the joint venture project. The joint venture is a distinctly separate entity from the members other businesses and assets.

An example of a joint venture might be the combination of ride-share giant, Uber, with vehicle manufacturer, Volvo, for the purpose of producing driverless motor vehicles.

4. Company

A company is a separate legal entity to the business owners. It is a legal vehicle that can incur debts in its own name, can sue and be sued by other parties. It does not cease if an owner passes away but exists until it is wound up. The business owners are the shareholders and can often hold the position of director and secretary as well, particularly in a small business arrangement.

A director is responsible for the management and governance of the company and need not be a shareholder. A company secretary is responsible for ensuring that the reporting obligations of the company are met.

If you are considering setting up a company, you will need a company name, you will have to set up a governing structure with a constitution suitable to your business. The company must be registered with the Australian Securities and Investments Commission (ASIC) and will incur a yearly fee.

There are many complex parts to a company and essential for you to speak to your accountant or lawyer, or both, prior to setting up a company structure. It can have considerable set up costs compared to other entities and there are many legal obligations of the office-bearers. However, there are considerable benefits too.

It is an excellent vehicle to conduct business and ensure your personal assets, such as your home, are protected against legal action.

We had a client who, after audit, was required to repay some tax rebates received as R&D credits, together with penalties. The shareholders thought they had to sell their home to pay the company’s debt. They did not. The company remained responsible for its own debts and the shareholders got to keep their house.

Unless you give a personal guarantee for a business loan, then your private assets are protected. Since the company is a separate legal entity, it has a separate liability from the business owners. It can incur debts that are limited to the value of the company. If an aggrieved party sues the company for the outstanding debts, it is limited to the company itself and cannot sue the owners, unless they have given a personal guarantee, or fall within a category of liability where directors can be found personally liable – such as failing to pay superannuation.

There are other benefits with respect to taxation as well. The company pays tax at a company rate and can pay “fully franked” dividends to its shareholders, which can be very attractive to the business owners, depending on their individual circumstances.

Since November 2021 directors of companies (along with some other entities) now must be issued a Director Identification Number (DIN) which is issued by ASIC.

There are two types of companies – a privately owned company and a publicly owned company. So what is the difference between a private company and a public company in Australia?

4.1. Private Company

A private company is distinct from a public company because it is privately owned. It will often have “Pty Ltd” after its business name, and this means ‘proprietary limited’. This indicates it is privately owned, with limited liability.

A Pty Ltd or proprietary limited It is the most common structure for small businesses. It is incorporated, issues shares, will have a maximum of fifty shareholders, and each of the shareholders are not personally liable for the debts of the business. They will only be liable for any unpaid financial value of their shares. What this means if that if you purchase 10 x $1 shares but only pay the company $5 at that time of purchase, there will still be 50c owed against each of your 10 shares, and that must be paid if called by the company.

A private company is for protection of your personal assets. There are a large variety of share structuring options available, so it is definitely an option to discuss in greater depth with your accountant or lawyer.

4.2. Public Company

A public company is a company that can be listed on the stock exchange and is funded by investors, or a company to be limited by guarantee and operated as a charity or not-for-profit.

Not for profit means the members or shareholders are not entitled to a distribution of the profits of the business and the profits must be reinvested back into the business. In a for profit company, members or shareholders are entitled to receive a distribution of the profits if dividends are paid. Business is not sustainable if it does not generate a profit.

A public company often has “Ltd” or “limited” after its name to indicate that it has limited liability.

For profit public companies have a complex structure and are required to issue public documents when paying dividends or raising capital. Qantas is a public company. Any company you can purchase shares for on the Australian Stock Exchange is a public company.

A public company remains an option if you grow your business to the point where you would like to take it public and raise considerable share capital through a public offering.

A not-for-profit public company is an appropriate structure for a large charity.

5. Trusts

A trust can be an excellent asset protection structure, but you will need tailored legal and financial advice to correctly suit your personal circumstances. A trust is a vehicle that enables a trustee to act in the best interests and hold property or income for a particular purpose, for the benefit of the beneficiaries or trust members. The trustee can be an individual or a company.

Whilst there are many types of trusts available, there are two main types of trust used in small business. They are:

  1. Unit Trust
  2. Discretionary or Family Trust

The trust is set up with a formal trust deed that provides guidance on the way that the trust operates and the powers of the trustee.

There are other parties named in the trust deed – such as the settlor who won’t have any future involvement in the trust, but who is essential in its establishment.

Superannuation trusts are often established with limited investment categories, for example, an inability to invest in cryptocurrency.

The trustee is responsible for administering the trust. Provided that the trustee behaves appropriately, the trustee is usually entitled to be indemnified out of the trust fund for any liabilities incurred in association with the administration of the trust. If the trust is an individual trustee, their own personal assets can be at risk if the trustee is sued and a good reason to appoint a company as a trustee.

A trust may also be entitled to a 50% capital gains tax exemption, but a company is not. You should seek accounting advice when reviewing your tax obligations.

A discretionary trust is the most common structure in small business.

A unit trust is one of the most common structures for small property development. 

Unit trusts have certainty in proportionate interests, whereas a discretionary trust is variable depending upon the decisions of the trustee. Where a greater degree of certainty in financial dealings of trust property is required, the unit trust is more effective. Each unitholder of the trust holds a specified number of units and the trustee has no discretion to give unitholders distributions that are inconsistent with the rights of other unitholders. You can transfer a unit to another unitholder, just like shares in a company.

We normally recommend that people involved in a unit trust structure enter into a unitholder agreement, similar to a shareholder agreement, to better protect their interests.

How can Onyx Legal help you?

Book an appointment to talk with one of our team about your business structure and whether it is still the most appropriate structure for what you are doing and what you’d like to achieve.

Business & COVID Queensland

Business & COVID Queensland

Business & COVID Queensland

Business and COVID – 17 December 2021

This article offers a resource for business coming out of the RDA Moreton Bay presentation for business at the North Lakes Sports Club on 24 November 2021. Thank you to RDA Moreton Bay for the opportunity to be involved. 

Businesses to be affected

Hospitality, vulnerable settings (aged care, health, prisons etc), indoor entertainment, outdoor entertainment, festivals, weddings, government galleries, museums and libraries, etc.

Retail, public transport, places of worship etc are referred to as not subject to vaccination restrictions.  

Where to start?

  1. Official government websites – there are links to all Federal, State and Territory official sites here – https://www.australia.gov.au/
  2. Understand that State and Territory requirements and directions are all different. You will need advice relevant to each. The following information is for QUEENSLAND

Check out the FAQs in response to questions from business.

Regarding the Qld Health Direction expected on 17 December 2021

Public Health and Social Measures linked to vaccination status – A Plan for 80% and Beyond

This is currently a plan without legal effect, it will become a binding Public Health Direction as soon as it is published online.

EmployeesCustomers/ Suppliers

register for the Qld Check-in App and clearly display the QR Code at each entrance

display the COVID Safe Checklist at your premises

maintain social distancing – 1 person per 2 square metres (capacity) and 1.5m (proximity)

display the vaccination rules at your business premises (download)

promote the requirement on your website and social media channels

  • ask employees to link their vaccination certificates to their Qld Check-in App
  • remind customers when they make a booking
  • notify suppliers of requirements
  • consult with staff
  • ask staff to provide proof of vaccination status consult with staff about impact
  • consider the circumstances of each employee
  • consider alternatives such as social distancing, mask wearing, working from home etc
  • seek legal advice for ability to mandate vaccinations
  • seek legal advice before dismissing an employee on the basis of vaccination status
  • Check the FWO website for detail guidance on vaccinations in the workplace
  • If the Health Direction reflects the current direction for health services, employers may be liable to be fined up to around $13,700.00
  • ask for proof of vaccination from your customers/ suppliers at the time of check-in
    • the Check-in App should show a white tick on a green background if a valid vaccination certificate is linked, or a red question mark if not
    • a customer can show you a copy of their immunisation history statement or COVID-19 digital certificate
  • request customers/ suppliers not enter the premises if unable to provide proof of vaccination
  • provide training to staff on how to manage objectors effectively and without violence
  • if a person refuses to provide evidence of vaccination, you may call police who have the ability to issue a fine of $1,378.50
  • A person affected by administration of a COVID vaccine who is hospitalised for at least one night may make a claim under the no fault COVID-19 Vaccine Claims Scheme
    • get legal advice if you are concerned about your legal obligations
    • you may also require HR and workplace health and safety advice

     

    Where do the laws come from?

    FREE RESOURCE DOWNLOAD

    Download our PDF of this article including active links for your use.

    ONYX LEGAL Business and COVID information sheet for business effective 17 December 2021

    How can Onyx Legal help you?

    Book a short advice session and send us details about your business. We can provide a brief email confirmation of our advice for your records, or a full written advice if required for Board or management consideration. 

    Australia Consumer Law: How Does it Affect Your Business?

    Australia Consumer Law: How Does it Affect Your Business?

    Australia Consumer Law: How Does it Affect Your Business?

    australian consumer law: how does it affect your business?

    From 1 July 2021 the monetary limit that applies to consumer goods or services under the Australian Consumer Law increased from $40,000 to $100,000. So, what does that mean for you?

    Let’s start by looking at who is a consumer.

    Who is a consumer under the Australian Consumer Law (ACL)?

    Since 1 July 2021, a consumer can be any person or entity that purchases goods or services from you, where those goods or services –

    • are purchased for $100,000 or less;
    • or are ordinarily acquired for personal, domestic or household use,
    • or are a vehicle or trailer used for transporting goods on public roads (more than personal use).

    For anything purchased up to 30 June 2021, the value was $40,000. This is the first uplift in that value since 1986 and aims to protect a broader group of consumers. Whether your customer is a person, or a company or any other type of entity is irrelevant is the goods or services purchased were under $100,000. So, if you deal B2B, your business still has to meet consumer law obligations.

    Similar rules apply to the provision of financial services under the Australian Securities Investment Commission (ASIC) legislation, and the monetary limit of financial services has also been lifted.

    What protections apply to consumers?

    As soon as a purchaser is classified a consumer, the ACL consumer guarantees apply. Consumer guarantees are automatic and apply in addition to any warranties you might offer.

    A warranty and a guarantee are similar things. They are both promises that you make about your business goods or services. It might be helpful to consider them from an ‘active’ and ‘passive’ perspective. Consumer guarantees are automatic. A business doesn’t have to actively do anything, they just exist. A warranty is a voluntary promise, something you offer in addition to consumer guarantees. So, a ’30 day money back guarantee’ is actually an express warranty. Go figure.

    There are nine consumer guarantees for goods, and three for services.

     

    ProductsServices
    • Will receive clear title
    • Will have undisturbed possession
    • No undisclosed security over the goods
    • Acceptable quality
    • Fit for purpose
    • Match description
    • Match sample or demo
    • Repairs and spare parts are available
    • Express warranties will be met
    • Acceptable care and skill
    • Fit for purpose
    • Delivered within a reasonable time

    Clear title and undisturbed possession just mean that when you purchase it, the buyer knows that there is not another owner or some other costs in the background. An example might be a business or relationship break up where one person sells something second hand and it actually belonged to the other partner. The person who really owned it can argue that the person who sold it did not have the right to do so and claim it back. Equally, a customer might want to pick something up from customs only to discover there are fees owed before they can take away the goods.

    Undisclosed security is where money is owed. For example, if you want to buy a piece of machinery and there is finance owed on it and a PPSR registration against it, so the lender has priority over your claim and can sell the machinery to recover the debt, even though you bought it in good faith.

    Many of the consumer guarantees are straight forward, but acceptable quality will depend on the value and quality of the goods. If you pay $100 for something that is advertised as an outdoor marquee, you might expect it to last at least a day, but you wouldn’t expect it to last for years and you wouldn’t expect it to last through high winds. On the other hand, you would expect a $1200 marquee to be more robust.    

    For something to be fit for purpose, the consumer has to let you know what purpose is important to them. So, if a customer says it is important to them that the office chair they are buying can recline, but not fall over with someone who weighs 110kg in the seat, then the office chair needs to be able to meet that specification to be fit for purpose.

    The availability of spare parts is important because it can affect what people are prepared to pay for an item. A consumer might be prepared to buy something that will last for a limited period without repair if it is cheap (consider home printers), but not pay for a large office copier without the ability to rely on regular service and repairs.     

    What happens if you do not meet a Consumer Guarantee?

    If you don’t meet a consumer guarantee, the purchaser has rights to remedies which can include repair, replacement, refund and may also include damages and consequential losses.

    Depending on how the failure to meet consumer guarantees came about, you may also be liable for penalties for breaching a prohibition on making false or misleading representations, another provision of the Australian Consumer Law.

    The type of remedy will depend on the problem with the product or service. If it is capable of being fixed, it is probably a minor problem and will need to be repaired or replaced. Depending on the value of the product, you also have the option of providing a refund, or the customer may have the option of requesting a refund.  

    Consider large retail chains which will refund or replace most items without question simply because it is more efficient than arguing with customers or sending items off for assessment or repair. It also ensures a loyal customer base. Not every business has the same scale to do that.

    If it is a major problem and cannot be fixed, then it is the customers choice about replacement or refund and the supplier must provide that replacement or refund and may also have to pay damages for any foreseeable loss resulting from the failure. In considering whether or not something is a major failure, you need to consider whether a reasonable consumer fully acquainted with the nature and extent of the failure would still have purchased the item for the amount that it was sold.

    Consider how you might feel in the same position. 

    For example

    ACCC v Jayco Corporation Pty Ltd [2020]

    As most people would know, Jayco is a brand of caravans and recreational vehicles (RVs). Jayco is a manufacturer that sells through dealerships.

    The ACCC took action against Jayco to determine whether 4 RVs were of acceptable quality (a consumer guarantee), fit for purpose (a consumer guarantee) and whether the manufacturer was compliant with its express warranties. There was also a claim of misleading and deceptive conduct.

    The first RV was a camper trailer. The issues it had were mainly a collection of relatively small poor finishes, but there was also a problem with the alignment of the chassis and a strut that failed in lifting the tent, causing further damage. The Court said –

    At that price point ($27,000+), a reasonable consumer was entitled to expect a commensurate level of quality, including fit and finish. That expectation is consistent with the brochure that Jayco Corp published, and which Consumer read, which was calculated to convey the impression that a Jayco camper trailer was a durable, quality product. The combination of defects with the RV had the cumulative effect that the RV as a whole was not acceptable in appearance and finish, and its presentation was not consistent with the impression conveyed by the Jayco brochure…. In consequence, Consumer was entitled in April 2014 to reject the RV on the ground that the failure to comply with the guarantee of acceptable quality was a major failure…. As a result of the failure of the strut for the tent section on the second occasion, the RV was substantially unfit for purpose.”

    The second RV was pop-top caravan that leaked, which was something the Consumer specifically asked about before purchase. Over a 15-month period it was in for repair on approximately 10 occasions. The Court considered the inability to provide shelter from the weather (the leaking soaked mattresses) “went to the heart of one of its purposes” and that “a reasonable consumer, fully acquainted with the defects and what was involved in attempting to repair them, would not have acquired the RV, and therefore there was a major failure” which entitled the Consumer to a replacement or refund.

    There was also discussion around the fact that Jayco promoted their products as suitable for a relaxing family holiday, and a leaking roof and chassis would make it unfit for that purpose.

    In all cases, Jayco had not provided a replacement or refund of the purchase price of the RVs and in one case was found to have led the consumer to believe that the only remedy available was repair. The court found those representations to be misleading or deceptive (s.18 of the ACL) and false and misleading (s.29 of the ACL). As a result, Jayco was required to pay a penalty of $75,000. It then had to deal with the owners of the RVs.

    How to manage your risk of a consumer plan

    We can help you to review your terms and conditions of supply of goods or services, whether you make them available online through your website or otherwise.

    There are provisions that can be written into terms and conditions to provide you with a level of certainty around what you must do to meet consumer guarantees. For example, with consulting services it might be easiest for you to simply provide the services again rather than offering a refund. This will depend on how amicable the relationship remains with your customer, but may be more attractive that having to refund the consulting fee.

    The ACL does require specific wording in terms and conditions depending on the goods, services or warranties you offer.

    Once we have your terms worked out, then we can look at your processes with you and how information is shared within your business so that you and your employees understand how best to respond to and deal with requests for replacement or refund.

    How can Onyx Legal help you?

    Your terms and conditions of supply are important documents for managing your risk. Understanding your risks and having a clear understanding of how to respond to and deal with consumer complaints also makes a big difference. Book at time to discuss your situation with one of our team.

    Online Learning: Protecting Your Business Online

    Online Learning: Protecting Your Business Online

    Online Learning: Protecting Your Business Online

    consumer protection

    Did you know that all businesses must comply with consumer protection laws?
     
    Do you understand how consumer rights affect your business?

    PRIVACY FOR SMALL BUSINESSES

    All business owners must understand their obligations under Australian Privacy Laws.
     
    To ensure your business stays on the right side of the law, watch our video to see our Principal Lawyer, Jeanette Jifkins, explain Privacy Law in Australia in more detail.

    TERMS AND CONDITIONS

    Terms and conditions help protect you and your consumer. So what do you need to include on your website?

    Watch our video to see our Principal Lawyer, Jeanette Jifkins, explain.

    website ownership basics

    Who owns your website and what does that mean?
     
    Did you know there is a difference between your domain name and what people see on your website?
     
    Watch our video to see our Principal Lawyer, Jeanette Jifkins, discuss website ownership.

    understanding copyright law

    Watch the full video on Understanding Copyright Law below.

    managing testimonials, comments, and reviews

    Let’s talk testimonials and no, you can’t make them up.
     
    How do you manage them? Are you allowed to use testimonials for advertising? Can you edit them?
     
    Watch our video to see our Principal Lawyer, Jeanette Jifkins, answer all these questions.

    anti-spam

    Spam is an electronic commercial message that can include email, phone and even online chat platforms.
     
    When done incorrectly it can be easy to create marketing that your audience may categorise as spam.
     
    If you want to avoid this we recommend watching our below video to see our Principal Lawyer, Jeanette Jifkins, explain anti-spam in more detail.

    How can Onyx Legal help you?

    We’re interested in strategies that support you and your business to grow and get stronger. If you receive a nasty letter of demand and want help in figuring out how to respond, contact us to help you map the way forward.

    What Does A Standard Signing Clause Look Like and What Does It Apply To?

    What Does A Standard Signing Clause Look Like and What Does It Apply To?

    What Does A Standard Signing Clause Look Like and What Does It Apply To?

    What does a standard signing clause look like and what does it apply to?

    Generally

    A person will be bound by the terms of an agreement they sign whether or not they have read it, and whether or not they understand its terms. So, a signing clause can be very simple. The main purpose is to prove that a person has agreed to the contract they have signed.

    In most cases in business, a person is entitled to reasonably rely upon the signature of the person signing as being authorised to bind the company they work for. This is not always the case. If you are dealing with a very junior person in a business, it is unlikely they have the required authority to sign something that binds the business, but the signature of a senior manager or director should be able to be relied upon.

    For the purpose of proof, the best style of basic signing clause should include:

    • the name of the person signing, in a legible form, which is why signing clause sometimes say ‘print name’ or ‘block print name’;
    • a signature
    • the date.

    The reason to include a date is to easily track when the agreement was made. It is very common for signing parties to forget to enter a date on the first page of an agreement (where there is usually a space for the date) and then years later, anyone trying to work out when the document should be dated is trawling through emails and other records to try and figure it out. At least if the person signing has to also date the document, if it is missed on the first page, there will still be an easy reference within the document.

    If you’ve been following our recent articles, you would probably know that although not all documents need to be signed to be legally binding, it is always a good idea to use a signature to indicate that an agreement was entered into between the parties. The signature can be a reliable form of proof of agreement.

    Different types of documents have different execution requirements. (Execution in this context means the performance of something in a planned way, not the killing by legal punishment meaning.) For example, deeds have different execution requirements than agreements, and we will discuss those differences below. Other documents such as wills, powers of attorney or court documents also have different rules around proper signing.

    Having an appropriate signing clause can help ensure that your document is correctly executed and is valid and enforceable.

    So, what does a standard signing clause look like? Let’s start by looking at signing clauses for agreements.

    Standard signing clause – agreements

    A standard signing clause applies to all kinds of agreements (but not deeds). For example, services agreements, licence agreements, contractor agreements, and loan agreements.

    The elements of a signing clause would need to be slightly adjusted depending on who is signing.

    1. Individual

    If you are signing as an individual, nothing more is required than your name and signature.

    Although not legally required, it is good practice to have your signature witnessed by a third party. This is good evidence in case a dispute arises as to whether the agreement was properly signed, and particularly if the person signing argues that they did not intend to sign it.

    An example signing clause would look like this:

    When a signature does not need to be witnessed to be legally binding, then even though there is a section for a witness, the document will still be binding without it.

    If someone signs a document without a witness, it is too late for their signature to be witnessed. A person can only witness a signature if they are present and watching as the person signs the document. We sometimes have people ask us to witness their already signed documents, and the answer is always, ‘no, we will have to reprint the page and do it again’.

    2. Company

    If it is your company that is executing an agreement, you should comply with the Corporations Act 2001 (Act); in particular, section 127 of the Act.

    The signing clause for companies usually contains the words ‘signed on behalf of [company name] in accordance with s 127 of the Corporations Act 2001 (Cth)’.

    Signing pursuant to that provision means that a person can rely upon the Corporations Act to state that the document was properly signed, however, if a document is not signed correctly in accordance with that section, it may still be binding on the company.

                 a) With common seal

    If your company has a common seal (which is basically an ink stamp that you can press onto an agreement as the company’s signature), that stamping must be witnessed by:

    • 2 directors of the company;
    • 1 director and 1 company secretary; or
    • the sole director and secretary of a proprietary company.

    The use of a common seal is becoming less common. Most companies execute without a common seal. Companies such as registered training organisations, that provide certificates of completion for students, are the types of companies that still adopt a common seal.

                 b) Without common seal

    Executing without a common seal is a very similar procedure, with the only difference being you do not have to stamp the agreement with a common seal.

    It simply requires the signature of:

    • 2 directors of the company;
    • 1 director and 1 company secretary; or
    • the sole director and secretary of a proprietary company.

    These signatures do not need to be witnessed.

    3. Trust

    A trust is not a legal entity on its own and cannot execute agreements. Trustees are the ones that sign on behalf of the trust.

    A trustee can be an individual or a company. The execution method is exactly the same as mentioned above, except that the signing clause would need to specify the signatory is signing in his/her/its capacity as trustee for (ATF) the trust.

    If you are an individual trustee (witness is not legally required but is good practice):

    If you are a corporate trustee:

    4. Partnership

    If you are in a partnership, you can sign an agreement on behalf of the partnership and bind the entire partnership to it.  Ideally you would have a very clear partnership agreement which identifies who is authorised to sign what type of document, rather than every person in a partnership signing without the knowledge of the other parties.

    Again, witnesses are not legally required but it is good practice to have your signature witnessed by a third-party.

    Signing clause for deeds

    Different to an agreement, a deed will take effect from the time it is delivered (not physical delivery but where the executing party intends to be bound – ie. at the time of signing).

    This is why the signing clause to a deed would need to contain the words ‘signed, sealed and delivered’.

    Other than this, executing a deed is very similar to executing an agreement, with the only exception being if you are signing as an individual, you must have your signature witnessed by a person who is not a party to the deed.

    There are some exceptions for signing documents under COVID legislation

    It is important to also note that if you are a partner and want to sign a deed to bind the entire partnership, you must be given authority to do that under a deed (ie. partnership deed). A verbal or other type of written acknowledgement is not sufficient to give you that power. In addition, your signature must be witnessed by a person who is not a party to the deed.

    To find out more about deeds, please read our article about Deeds v Agreements.

    Need help?

    If you need help or have questions about how to correctly sign your documents, please contact us.

    Trade Marks and Copyright: The Difference Explained

    Trade Marks and Copyright: The Difference Explained

    Trade Marks and Copyright: The Difference Explained

    Trade marks and copyright: the difference explained

    For many businesses, intellectual property is one of their most valuable assets. We often get questions from our clients on how they can best protect their intellectual property, but what we have noticed is that many of them struggle to identify what specifically they are trying to protect.

    This is completely understandable because intellectual property comes in many different forms. The two most commonly used types of intellectual property protection are trade marks and copyright.

    In Australia, we refer to trade mark in two words, consistent with the legislation. Overseas, it is common to combine the words to ‘trademark’. They each refer to the same thing.

    Some of the frequently asked questions we get include ‘What can I trade mark?’, ‘Can I sue someone for using my trade mark?’ or ’How do I protect my copyright?’. In this article, we will answer these questions for you.

    Firstly, let’s explore the difference between the two.

    Trade marks – protection of your brand

    If you have been running your business for some time and have established substantial goodwill and reputation, your business name becomes your brand. Your brand is your trade mark. Two of the fastest growing trade marks in 2020 were TikTok and Zoom. When you hear those names, you can immediately bring to mind the kind of services each platform offers, even if you haven’t used them yourself.

    Think of a trade mark as a ‘badge of origin’. It is anything that distinguishes your goods and services from those offered by other traders in the market. It can be your business name, logo, slogan, colour or even a sound, or a smell – although scent marks are very rare.

    Your trade mark is a valuable marketing tool. The purchasing decisions of consumers are often influenced by the brand, so the higher your brand recognition, the more you may want to prevent your competitors from using a similar brand to provide similar services and benefit from your hard-earned success.

    Think about how people by cars, or shoes. Many people favour a particular brand of motor vehicle because it is either something they have always driven, or it has a brand promise that they believe in or relate to. For example, Toyota is known for reliability, and Ferrari is the world’s most well known racing car. In shoes, people will often favour a brand like Asics, or Adidas, or Nike depending on their preferred sport, or sports stars.

    So, how do you gain the exclusive right to use your trade mark and take actions against those who infringe it?

    The answer is by registration. We will talk about this further below, first lets look at how copyright is different from trade marks.

    Copyright – protection of your original creative works

    Copyright has more substance that a trade mark and is more likely to be judged on the amount of creative input required to develop the work to be protected. Where a word can be a trade mark, a word by itself won’t be protected under copyright.

    Copyright protects the creation of literary, dramatic, musical, artistic, and certain other types of intellectual works.

    When you write a book, you are the copyright owner of that book (unless you have agreed to transfer your copyright to someone else). When you create online education materials, all your materials, including videos or audios, are your copyrighted material.

    Just like trade marks, your copyright materials can be extremely valuable to your business. But unlike trade marks, you do not need to register copyright to gain protection. Copyright is generated automatically upon creation of the work.

    There is one exception to that rule, and that is the registration of digital works in the United States. If you want to claim protection of a digital representation of your work in the United States, you must first register that work with the Electronic Copyright Office.

    To have copyright protection, you must document your ideas and have it in some sort of tangible form. The easiest way would be to write it down. A visual or audio recording is also sufficient. It is important to understand that a mere idea is not protected. This is part of the reason that businesses rely on non-disclosure agreements and confidentiality deeds. Those sorts of agreement can provide you with protection of an idea before it is discussed and before it has been documented or produced in some other form capable of copyright protection.

    What protections do you need?

    As you can see, trade marks and copyright are two very different types of intellectual property. What you can do to protect them is very different too.

    Trade marks – protection by registration

    A trade mark can exist without being registered; however registration gives you the exclusive right to use your trade mark and makes it much easier to defend.

    What this means is that you will have the legal right to stop others from using your trade mark and when necessary, take legal action against them to defend your rights. Just be aware that it is your responsibility as the trade mark owner to keep an eye on the marketplace and identify any infringement or potential infringement of your trade mark. When you see someone using your brand, or something very similar to your brand, you should tell them promptly, and request that they ‘cease and desist’ the infringement.

    From time to time, we have clients who have already contacted someone they believe to be infringing their mark without persuading that person to stop their infringement. Sometimes, this is because our client doesn’t have the rights they thought they did, and sometimes it is because they have stated their rights incorrectly. It is important to check what rights you have first, before making any claims. We have a number of strategies for communicating with infringers to bring about a quick resolution to your concerns.

    In Australia, if you do not have a registered trade mark, it can be an offence for you to threaten legal action against someone for using your trade mark. If you do have a registered trade mark, you should be notifying infringers that you do, and asking them to stop infringing your trade mark. This is usually done with a cease and desist letter.

    Copyright – protection by documenting your ideas and creating tangible material

    Registration is not required to protect copyright. Copyright material is protected as soon as it is created (in tangible form, that is). As the copyright owner, you have the exclusive right to reproduce your work, commercialise it, and be recognised as its creator.

    As already mentioned, the one exception is the requirement to register a digital work with the Electronic Copyright Office in the United States if you want to take action against someone in the United States for copyright infringement.

    Unlike trade marks, we are not aware of any countries outside the United States that have official registers or databases for copyright, so in most cases, people won’t be able to conduct searches to see if something is an original creation.

    Because there is no form of registration and in pursuing someone for infringement you might be required to demonstrate that you are the original creator of the work, it is especially important for you to use one or more of the following strategies to protect your copyright:

    • keep a record of your evolution of ideas – as evidence of the progression of your work
    1. drafts, sketches, rough recordings, plans etc
    • insert footprints into your work (eg. deliberate mistakes or hidden data that identify you as the author)
    • watermark your work
    • use technology to make it harder to copy your work electronically
    • include a copyright statement on your work – this alerts people to the fact that your work is subject to copyright and you intend to protect it © [your name] and [the year the work was created]
    • include copyright use provisions in the terms of use or terms and conditions of your website that clearly set out what people can and cannot do with your published work
    • provide your contact details so people can ask for permission to use your work
    • if your work gets used regularly in educational institutions, government or big business, then register your work with the Copyright Agency to receive any royalty payments collected on your behalf
    • have template cease and desist letters you can send to people you believe to be infringing your work, politely asking them to stop.

    What happens if you don’t take steps to protect your interests?

    Under both trade mark and copyright law, if you don’t take steps to protect your interests you can lose your rights.

    For trade marks, you must use the mark in the form registered, and take steps to stop others using your mark in order to keep the protection that registration provides.

    For copyright, if you don’t let people know that they are infringing your copyright, you can make it harder to prove that you created the work in the first place, and if you knowingly let things pass, you may be deemed to have given permission for use.

    Consider creating an intellectual property register for your business so that you can keep track of your different types of intellectual property, when they were created, who created them, and what you have done to protect it. Your intellectual property is an asset to your business.

    How long do protections last?

    Trade marks – 10 years

    A trade mark registration lasts for 10 years from when you first file your application. You can renew your trade mark registration by paying renewal fees any time before the expiry of six months after the date your registration is due to lapse.

    Copyright – creator’s life plus 70 years

    The duration of copyright can vary depending on the type of work and whether the owner is an individual or a company, but generally in Australia, it is the life of the author plus 70 years.

    Summary

    To summarise the differences between trade mark and copyright protection:

    • your brand and logo are protected as trade marks, upon registration
    • your content and materials are protected by copyright, upon creation
    • you can and should take a variety of different steps to protect your intellectual property

    Need help?

    If you would like help identifying your valuable intellectual property, creating an intellectual property register and protecting your intellectual property, contact Onyx Legal.