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.

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.

Disclaimers: What They Do and Don’t Protect You From

Disclaimers: What They Do and Don’t Protect You From

Disclaimers: What They Do and Don’t Protect You From

Disclaimers: What they do and don’t protect you from 

As a business owner, it is likely that you run a website, blog or social media to help people find you, advertise and promote your products or services. It is the most effective way of attracting potential customers or clients in this digital age.

When someone visits your website, you are offering them information of some sort. Are you always 100% certain that all the information on there are accurate and up to date?

Even if your answer is yes, do you know how your customers or competitors are using or interpreting that information? The best you can do is hope they are using it the way you intended, but really it is out of your control.

This is why having a disclaimer is always a good idea. It can better protect you and your business.

What is a disclaimer?

Almost all websites have disclaimers. You must have seen one before. Sometimes disclaimers are hidden in terms of use, and sometimes they have their own individual link in the footer, and sometimes they appear in every footer, whether that is on a website or email.

A disclaimer is a notice that you display to protect you from potential legal issues; it is a statement that you are not responsible for something. To give you an example, here is Wikipedia’s no guarantee disclaimer:

Wikipedia cannot guarantee the validity of the information found here. The content of any given article may recently have been changed, vandalized or altered by someone whose opinion does not correspond with the state of knowledge in the relevant fields.”

 

So, why is it important to have a disclaimer?

Well, consider the case where someone claims that they have relied on your information and suffered loss as a result. Let’s look at an example.

A marketer promotes pre-sales of a real estate development through a website. (A common cause of claims in court.)

The website has some images that are ‘artist’s impressions’ of what the development will look like when it’s finished and might contain other information like a copy of a survey diagram. It might also contain a list of finishes to be included in the final development.

Survey diagrams are really things you should check with a surveyor, engineer or other professional, rather than take from a marketing brochure, but that might also depend on who is providing the brochure and what expertise they say they have.

The website should clearly caution the buyer that the artist’s impressions might not be true to the end result and that a buyer should make their own enquiries to verify information before they decide to buy; like checking the inclusions in the contract with the builder. If there are no clear statements, it is possible that a buyer could claim they were misled by the information on the website and would not have bought otherwise. Then if the property turns out being something they don’t want or doesn’t have the value they expected it to have, they sue the marketer to try and recover their losses.

You do not want to put yourself in a situation like this, where your business reputation could be damaged, and you could be found liable to pay legal costs to defend yourself and possibly someone else’s losses.

Some other common examples we see are:

  • people who have a lived experience with a physical condition or disease, but no formal medical training
  • people who have successfully built a business without any formal qualifications
  • people who have successfully overcome an adversity and again, don’t have any formal qualifications

Out of a genuine desire to help others and share the benefit of their experience, a person like this might establish a business around coaching or educating others on how they achieved what they did.

The thing is, not everything works for everybody consistently, and there is a risk if you put yourself in this kind of position that you will encounter a person your services don’t work for, and they say the relied completely on what you said. In that situation, a disclaimer might just help you avoid costly court proceedings.

And for something completely different…

Now consider a completely different situation where your website makes it possible for other people to post comments, reviews or advertisements. Forum sites and advice sites like Quora are like this.  All the information posted by third parties could mislead your customers, clients, or visitors of your website, and you could be the one exposed to liabilities because of their actions.

By having a clear and comprehensive disclaimer for your websites, and building behaviour and processes consistent with the terms of your disclaimer, you put yourself in the best possible position to:

  • protect your rights;
  • limit your liability; and
  • disclaim third party liability.

 

Do you need a disclaimer?

Yes, and no.

Being in business involves a certain level of risk and some types of business are riskier than others, and some types of business people are happy with more risk than others.

We need to look at your business, your background, your products and your customers to form an opinion on how important it is for you to use disclaimers.

Generally speaking, we will suggest you do use a disclaimer on your website.

This is because any member of the public that has internet access can see the content on your website, and you are responsible for all the content you put on there. Even if you are not making money from these websites (for example, you might be posting a blog simply for informational purposes), you must still take reasonable steps to ensure that visitors of your website will not be misled by any information you share.

However, if your business is fairly straight-forward and well understood, like a barber or hairdresser for example, you probably don’t need a disclaimer. Everyone knows what barbers and hairdressers do. The worst that can happen is probably a bad haircut, or a bad colour, or a clumsy shave. The risk to the business is the cost of the service, and maybe the cost of fixing the problem, or the customer having someone else fix the problem. The problem probably won’t cost the business more than $300. So, will a disclaimer make any difference? Probably not.

On the other hand, coaching can be a really interesting area where you as a coach should be careful about what you say you can do for someone, particularly when results are going to be dependent on how much effort and application your client invests in doing what you have advised them to do.  If you are offering a high-end coaching package with a purchase price over $10,000, we would recommend a disclaimer.

If you run a website or email list that provides information which is likely to be relied on by visitors  to your website, or subscribers on your email list, you are strongly encouraged to have a disclaimer in place. Particularly if you provide specialised information, in areas such as health, managing money or an industry that is regulated.

If your website provides specific steps in a process or a guide for people to follow, you could also increase your legal risk.

An example might be if you are an online fitness trainer and you post videos that step your clients through a workout. If someone who watches and follows your video injures themself, then you run the risk that they sue you for their injury. But if you have a disclaimer in place which covers your legal obligations and placing some responsibility for your clients behaviour back on to them, you give yourself a much higher chance of avoiding liability.

 

What kind of disclaimer do you need?

You may run different types of websites, and the type of disclaimers you need will vary.

  • Websites

What disclaimer you need depends on whether you use your website to sell products or services, or merely to publish information. If you use your website to sell a product, someone could get hurt when using your product. Whereas if you post information on your website, someone could misconstrue that information and suffer loss as a result.

You might need a ‘no responsibility’ disclaimer which states that you are not responsible for any damages people suffer as a result of using your products or services. Or you might need a ‘views expressed’ disclaimer to inform readers that the information is only your view or opinion and is not intended to be relied upon without advice specific to their circumstances. 

  • Blog

If you intend on giving information on your blog which you are not qualified to give, you need to have a disclaimer to explain the limits of your qualifications and to recommend that people seek professional advice relevant to their circumstances.

If you are not a health professional but provide information about a health conditions, you need to make it very clear that readers should not rely on your information without seeking their own independent medical advice. The same applies for other types of expert advice including financial or legal advice.

If you are merely passing on information, you should indicate that it is work of another and that you are not endorsing it by making it available on your website. 

  • Emails

You may need a disclaimer in your emails, depending on the type of business you run and how you use your email. 

For instance, if you email contains advice that you are not qualified to give, you should include a disclaimer to the effect that you are not an expert in that field, that you are only offering a suggestion and that readers who act on the information do so at their own risk.

A confidentiality disclaimer can also be beneficial if you are sending confidential information. The disclaimer should state that the recipient must not use, reproduce, copy or disclose this information other than for the purposes for which it was supplied. 

  • Social media (eg. Facebook, LinkedIn, Instagram)

Again, this will depend on your business and how you use social media.

One of the biggest risks with social media is that third parties can comment, post, or advertise on your page. A disclaimer to limit your liability for any actions or errors of third parties will be of assistance if you are also monitoring your social media pages and removing posts or qualifying posts and comments that could be misleading.

 

How do you write a disclaimer for your website?

It is not possible to have a disclaimer that could work for all types of businesses or websites. Each disclaimer is different depending on what you do and how you do it. Like we said earlier, we need to look at your business, your background, your products and your customers to form an opinion on how important it is for you to use disclaimers.

To help you decide what you should include in your disclaimer:

Step 1 – Think about what rights you want to protect

Step 2 – Think about what liabilities you might be exposed to

You need to identify the possible risks and scenarios that could expose you to legal liability.

Consider:

  • Warning your readers that your content is merely an opinion and not a fact
  • Alerting your readers to the potential mistakes and inaccuracies in the information
  • Informing your readers that you are not offering professional advice and your content is only informational, and that they should consult a professional before making any decisions
  • Disclaiming liability for any errors in the information that third parties post on your websites (together with a process for reviewing the accuracy of information shared, or making it clear that older posts might not be accurate.

 

When are you not protected by a disclaimer?

If your disclaimer contains terms that attempt to exclude a legal liability that cannot be excluded, your disclaimer will not shield you from liability. If it is contrary to law, it might be void, but if it is legally compliant, it might still limit your potential liability.

Most people get in trouble when they say or do things that are inconsistent with their disclaimer.

Always keep in mind that your disclaimer must be consistent with your behaviour and business processes and any representations that you make, whether on your website or through your conduct. If anything on your website or your conduct creates a different impression for your customer or client, your disclaimer will not protect you.

Your disclaimer also needs to be placed somewhere where it can easily be seen either by customers using your website or receiving your emails or communications in any other way. If your disclaimer is too hard to find or too small that is can be easily missed, it will not protect you.

Conventional website design will usually have a link to your disclaimer in the footer of your website.

 

 

do you still need insurance when you have a disclaimer?

Yes.

Even if you have a disclaimer in place, you should still hold adequate liability insurance to protect business activities. Having a disclaimer does not mean you are guaranteed to be protected from all liabilities. If a claim is brought against you, it is up to the courts to determine the effect of your disclaimer and to what extent your liability is limited. The more vague or confusing your disclaimer is, the more unlikely that it will protect you.

 

 

Want more information?

 A well-drafted, quality disclaimer can help you to effectively manage your customer or clients’ expectations and set the boundaries for your responsibility and liability.

Contact Onyx Legal so that we can work with you to identify the most appropriate form of disclaimer for your business and your customer base. 

Privacy Policy: Collecting and Managing Personal Information

Privacy Policy: Collecting and Managing Personal Information

Privacy Policy: Collecting and Managing Personal Information

Privacy Policy: Collecting and managing personal information

As a business owner, how many times a day do people give you their personal information? Do you think about protecting it, or do you just assume that the systems you have in place will do that? 

Or maybe you don’t think about it at all. 

Does a small business need a privacy policy?

You must comply with Australian privacy laws unless you run a small business with $3 million or less annual turnover. However, you will still be bound by privacy law if your small business does any one of the following:

  • are a credit reporting body (e.g. Equifax, Illion) or
  • are a contracted service provider under a contract with the federal government; or
  • provide a health service or otherwise hold health information (e.g. health practitioners, life coaches, personal trainers, childcare centres); or
  • collect or disclose personal information for a benefit, service or advantage (e.g. operating a lead generation website where you sell the leads).

If you have any customers or suppliers overseas and you collect their personal information, you may now also have to comply with what are called ‘extra-territorial’ provisions of laws from overseas. For example, if you have customers in the European Union, you are required to comply with the General Data Protection Regulation (GDPR), regardless of the size of business. If you have a medium enterprise with customers in California, you now must consider the California Consumer Privacy Act (CCPA).

Some other countries with privacy laws that have an extraterritorial scope include New Zealand, Brazil, Thailand, the Philippines, and Canada.

 

From a practical perspective, can not having a privacy policy really make a difference?

Apart from the legal obligations, there are practical consequences of not having a privacy policy too.

If you want to advertise on social media, or through Google Ads or other platforms, you are required to provide a link to a privacy policy before your advertising can go live.

A lot of international service providers include in their terms and conditions that you must comply with privacy laws to use their services, and they have the right to end your ability to use their services if you don’t.

For example, if you use PayPal you agree with the following terms of the PayPal User Agreement:

You must comply with all your obligations under applicable Australian consumer law, including as a seller by publishing a refunds and returns policy as well as a privacy policy, where required by law.

… you must not: Infringe PayPal’s or any third party’s copyright, patent, trademark, trade secret or other intellectual property rights, or rights of publicity or privacy.

…To the extent that you (as a seller) process any personal data about a PayPal customer pursuant to this agreement, you agree to comply with the requirements of any applicable data protection laws. You have your own, independently determined privacy policy, notices and procedures for any such personal data that you hold as a data controller, including a record of your activities related to processing of personal data under this agreement.”

What difference would it make to your business if you couldn’t process payments through PayPal?

 

So, what is the point of a privacy policy?

One of your many obligations under Australian privacy laws is that every time you collect personal information from an individual, that person must be able to find out why you are collecting it, and what you are going to do with it.

Posting a privacy policy that you understand and know you can apply, on your website where it is easy to access, is by far the easiest way to share with people what you are doing with their personal information.

 

So, what is personal information?

Under the Privacy Act 1988, personal information means any information or opinion about an identified individual, or an individual who is reasonably identifiable:

  • whether the information or opinion is true or not; and
  • whether the information or opinion is recorded in a material form or not.

And what does that really mean?

Well, for a start, it doesn’t cover information about people who have died, which is interesting considering the legacy profiles some social media platforms are now making available for the families of the deceased, but that is not the topic for today.

It does cover information you collect about your employees and contractors. Many businesses only think about customer information and forget that you also have to protect the privacy of employees, contractors and suppliers.

But what about a practical example:

Imagine a gym where someone is leaving and their trainer turns to another trainer and says something like “She’s never going to lose weight, you should see her mum, she just has fat genes”.

The comment is verbal, it’s an opinion, it refers to a person who can be identified visually, and whose name and other details could be found by looking at the trainer’s schedule. That makes it personal information.

Is there a risk of violating privacy law – Yes. Is it likely to be a big risk to your business? – No. Why not? – Because it probably wasn’t recorded and is therefore difficult to prove, but if another patron overheard it, or the trainer repeated it to someone else, it does start a chain of infringement.

Imagine the same gym has list of all their trainers with their phone numbers on a clip board, and that clipboard gets left on the front reception desk, where anyone coming in could take a quick photo with their phone.

Is there a risk of violating privacy law – Yes. Is it likely to be a big risk to your business? – Possibly. Why? – Because once that information is recorded in a different form, like a photo, your business has disclosed personal information without permission.

Can you see why it is important to understand what you are doing in the process of collecting personal information?

 

When are you ‘collecting’ personal information?

You collect personal information in your business all of the time.

Any time you confirm someone’s name over the phone, whether or not you write it down.  Every time someone fills in a contact form on your website. Every time you add someone’s details to a database. Every time you prepare a proposal for someone or take payment details. Every testimonial. These are all examples of collecting personal information.

This is a broad concept.

It includes getting personal information from any source and by any means, such as the people themselves, social media profiles, other businesses, or even surveillance cameras. In practice, all personal information that you hold will generally be considered information that was collected by you.

Bear in mind that if you generate personal information from some other data you hold, collection may also take place. For example, if you generate a sub-set of information from your database for promotional purposes, you’re effectively collecting that information again. And the practical consequence? – Your privacy policy and procedures should be broad enough to include that kind of activity in what you do with personal information.

How should you manage personal information?

This is where a lot of people get lost and think that having a privacy policy by itself is a cure for all ills. It isn’t.

You are required to manage the personal information you collect in an open and transparent way. What this means is that you must take reasonable steps to establish and maintain internal practices, procedures and systems for your business to ensure its compliance with privacy laws.

Do you have any sort of privacy checklist for small business to help your team navigate what they can and can’t do with personal information? If not, that is a good place to start. What is considered as reasonable would depend on your business.

Think about what type of personal information your business holds, how much information you collect, how your customers might be affected if their personal information was not handled properly, the size of your business, and the time and cost involved in implementing appropriate procedures.

What you are required to do in Australia is comply with privacy law to a degree that is commercially proportionate to your business. So, if you run an online marketing agency with a team of four people, your procedures are not likely to be as complex as a business supplying services to the defence force.

Here are some examples what you could consider implementing:

  • understand what privacy obligations you have as a business;
  • work out when you collect personal information, and why (avoid collecting more than you need for your business);
  • work out what you will do if someone wants to be anonymous, and if you can still deliver products or services if you allow that;
  • work out where you store personal information, and how you use it (do you use a commercial database, or excel, or your phone contacts list?);
  • work out if you share personal information (eg. with a distributor or courier service);
  • decide whether the systems and procedures you use in your business protect, or put personal information at risk of being disclosed, lost or stolen (eg. leaving a mobile phone in an Uber);
  • check that you have faith in the online systems you use and there is limited risk of unintentional access by someone outside your business (eg. information on a white board visible when you are on Zoom, unintentional disclosure of a Google form);
  • work out what you will do if you get a complaint from a customer about the use of their personal information;
  • work out what you will do if someone asks you for a copy of their personal information, or a change to that personal information (eg. change of name or address);
  • include privacy training as part of your induction process for new staff; and
  • annually review and audit your business’s privacy practices, procedures and systems.

 

How do you write an effective privacy policy?

Your next step then is to write a clear and up-to-date Privacy Policy about how your business manages personal information, or get us to prepare it for you. At a minimum, it must contain the following:

  • the type of personal information that you collect and store (eg. contact details, educational qualifications);
  • how you collect and securely store personal information (eg. collect directly from your customer and their public social media accounts, then add to a CRM);
  • the purpose for collecting, keeping, using and disclosing personal information;
  • how your customers can access and correct any their personal information and who to contact in your business;
  • how your customers make a complaint about a breach of privacy laws, and what happens when they do; and
  • whether you are likely to disclose personal information to overseas recipients, and if yes, the likely countries.

Your Privacy Policy will be more comprehensive depending on the complexity of your business and should be tailored to match your internal systems and procedures. A well-written, easy-to-understand Privacy Policy can add to your credibility and help build rapport with your customers.

If your Privacy Policy is made available online, you can provide a condensed version to outline key information, but a direct link to the full policy must be provided.

 

What if you get it wrong?

Privacy law is regulated by the Office of the Australian Information Commissioner (OAIC). The Commissioner can require your business to put in place systems, procedures or training, pay compensation, or apply to the court for fines to be made against your business.

Compensation is usually ordered where information has been disclosed, or where a person has requested access to their information, and it hasn’t been provided in a timely manner.

 

Protect your customers and your business

Having the right systems and procedures in place with a clear and comprehensive Privacy Policy is your opportunity to reassure your customers that you can be trusted, that you are aware of and care about their privacy and information security. In doing so, you are not only complying with your legal obligations but are also working towards building a reputable business. 

10 Ways to Avoid a Joint Venture Fail

10 Ways to Avoid a Joint Venture Fail

10 Ways to Avoid a Joint Venture Fail

Joint Ventures are great for collaboration

Working together with another like minded entrepreneur is a clever way to accelerate business growth, which is why joint ventures remain a popular way for individuals or organisations to collaborate. But before you ‘Give it Away’ (as there’s always room for a Red Hot Chilli Peppers reference in a legal consideration blog), it’s critical to shore up your joint venture’s credentials to ensure a smooth, surprise-free partnership from beginning to end. In this Onyx Legal blog , we highlight 10 ways to avoid joint venture fails. [Ok, so we ended up with 11 – Ed.]

Joint Ventures are usually for a specific and limited project, goal or purpose and may also be limited by time.

1. Who is party to the joint venture?

Establishing a joint venture is no time to be carefree with the details.

Before entering into a joint venture, establish the legal identity of all parties. This means performing ABN and other similar regulatory checks. It might also mean checking driver’s licence details of individuals. 

A client recently came to us with a proposed joint venture, and we could not establish who would pay him the $400k that he expected to receive as his share of profits. The deal fell over when the other party also failed to establish who would pay that sum.

2. How Should You Structure a Joint Venture?

It is important to understand that joint ventures and partnerships are different structures.

A partnership is a long-term working proposition with full legal liability – a commitment to working together into the future.

A joint venture is project or purpose-focused, and facilitates separate parties to continue working on other businesses simultaneously. Joint ventures can be done by contract with each party paying their own tax, but one of the parties must hold the assets relating to that venture (paperwork, accounts, assets) unless it is established in its own identity.

3. What do you want to achieve with your joint venture? 

It’s easy to get caught up in the potential of success and innovation at the beginning of a joint venture, which is why understanding what you want to achieve from the collaboration is so valuable.

We’ve observed web designers, marketers and programmers enter joint ventures expecting to receive a share in profits at the end of the build, only to have ‘goal posts’ moved so regularly they exit the venture – leaving thousands of hours of unpaid labour in their wake.

Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment.

Put together a clear written agreement covering all the moving parts of your proposed joint venture, and allowing some flexibility for change as your venture grows. 

have a written Joint Venture agreement

Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment

4. How long should your joint venture last?

How long is a piece of string?

There’s no single answer to this question; the duration of your joint venture is based on the purpose of the project.

Will you be building something – a house or a piece of technology?

Are you going to be running a developing a piece of software or an education program together?

If you are building or developing something together the period of the joint venture might be the development period, and once you have a completed MVP (minimum viable product) you might roll it over into a company and start building a team to run it. 

Where you’re entering a revenue share deal, it might be a two year focused time frame for growing the base income of the business. 

Whilst you do not need to define a hard ‘end date’ to your joint venture in documentation, it’s useful for all parties to understand the purpose of the relationship, and a general timeline to completion of the project, and what completion looks like.

We regularly write in rolling successive terms, such as a one year agreement that rolls over for another year unless someone terminates before the end of the year. 

5. How can disagreements be dealt with or avoided? 

A joint venture agreement should be robust, providing options should parties fail to perform their role, or decide to walk away from the project.

In collaboration with your lawyer and with your project’s specific risks and opportunities in mind, carefully identify pressure points that require clarification and consider an approach to realistic exit should your working relationship end unexpectedly before the project is completed.

Good joint venture agreements remove the element of surprise from projects, leading to higher rates of completion and reduced conflict.

For a two party joint venture, it is a great idea to have some way of independently breaking deadlocked decisions. You could use a trusted third party as a referee, such as a mentor or board adviser. You could also allocated areas of decision making to each party that give one person a try breaking vote on those issues.

6. What if someone wants out if the joint venture early?

Build the possibility of a party leaving the joint venture into the structure of the joint venture to avoid future problems.

The best laid plans of mice and men often go awry, and a party may need to exit the joint venture for any number of reasons. Family life may be under pressure, there could be financial considerations, or health issues to address.

Fairness is key when devising a graceful exit from a joint venture. 

7. What if you want someone else to join in the venture part way through? 

Joint ventures can be created to allow for the possibility of other experts parties joining the project. Sales professionals are typically invited to join in after an MVP is achieved. 

It’s important that you’re working with a lawyer to structure your joint venture for all possible contingencies … which could  include growing your collaborative group.

8. Who will do what in your joint venture?

Formalising a joint venture is no time for pussyfooting around responsibilities or making assumptions about role workloads.

Success in your project relies on clear delegation of work, as all parties will have other responsibilities that could take their attention, in addition to the joint venture.

It’s important to know exactly who will be paying the bills and who will be responsible for particular milestones.

Having difficult conversations early on about the work or outcomes due for completion by exact parties of the venture will save plenty of strife when life gets busy or timelines become blown-out. 

9. What happens if someone fails to live up to their responsibilities in the joint venture?

As with any project, it’s possible that the whole thing could become scrambled eggs.

Of course you don’t anticipate that will be the outcome, but it’s prudent to plan for unlikely circumstances. Think about COVID-19, a virus which has changed the trajectory of the global economy in the space of months. It was nigh on impossible to imagine the world shutting down a year before the corona virus; but there it is.

People can fail to live up to the responsibilities in a joint venture for a variety of reasons, including circumstances beyond their control.

Build into your joint venture contingencies around ‘failure to perform’ and decide what the dissolution of the relationship should look like. Who gets what? What will trigger the dissolution? How will any debts be paid?

These are important matters to discuss with your collaborative partners and your lawyer.

10. Who retains any intellectual property created during the venture, once it ends?  

Often a complex matter to consider, the ownership of intellectual property is the cause of many disagreements.

If the joint venture does fail, there is likely to be an argument about intellectual property and who owns what. If you can work out IP ownership at the commencement of your joint venture, you’ll design a logical way of dealing with the matter if you fall out.

Maybe each party only walks away with what they contributed; maybe each party walks away with one complete copy of the created intellectual property.

Certainty around what will happen at the time of the exit gives everyone confidence and reduces the risk of legal action. 

11. How will the project be managed?

A joint venture teaches entrepreneurs a whole lot about project management and communication. There are many moving pieces you and your partners will need to consider:

  • planning
  • stakeholder relationships
  • reporting
  • regular meetings and agendas
  • cashflow 

While it is appropriate for different roles to be attributed, a single party needs to be appointed to ensure accountability across the whole of the joint venture. You will need someone with the energy and drive to ensure that things happen. 

Flexibility must be built into this role, and an allowance to break ‘deadlocks’ in decision making.

Many’s the time we have observed joint ventures fall apart when the directors of the governing entity failed to design a mechanism for change, independent of the warring parties. 

Joint ventures are a terrific way for business owners to collaborate, to stretch their skills, test ideas, and to innovate. A well-designed joint venture allows for the clear division of work and responsibility, provides safeguards for failure and disappointment, and deals with the sticky stuff of business relationships before they become complex.

At Onyx Legal we support business owners to come together with like-minded partners in joint ventures, creating structures that respond to your unique projects, packed with safeguards to keep you as confident and safe as possible.

Our key takeaway for joint ventures?

Think on it.

Clarity at the beginning of a project leads to better results in a joint venture, and the chance everyone will meet or exceed their expectations. 

How can Onyx Legal help you?

Joint ventures have a contractual foundation.
You can form a joint venture with a handshake, or you can put a little thought into your expectations and negotiate an agreement that clearly sets out each party’s rights and obligations, as well as exit opportunities. We also highly recommend incorporating sensible dispute resolution mechanisms that will support the joint venture moving forward. If you are already in a joint venture, we can review the contract and clarify any legal rights and obligations you don’t understand.