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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.

Your Guide to Terms & Conditions

Your Guide to Terms & Conditions

Your Guide to Terms & Conditions

The last few years have seen lots of businesses pivot to make greater use of online tools and increase the opportunity for online sales.

As a business owner you should be considering the exposure of your online business and in particular, when you last updated your terms and conditions, your privacy policy and your disclaimer – or even if you have them to protect your business.

The post COVID-19 era has resulted in more important updates, changes and governmental compliance responsibilities than prior to the pandemic, and increased the complexity of navigating the online business world.

Your terms and conditions set out essential protections for your business including identifying which laws govern your website and business, reducing your chance of a dispute arising, giving you the freedom to remove unwanted people, and placing responsibilities on the user that are important to the way you do business.

Having terms and conditions can significantly reduce any future problems from arising, if you have taken the time to obtain appropriate legal coverage.

Services Online

If you sell a service and have any type of intellectual property, such as an education course or unique planning tool, you will want to ensure one of your terms and conditions include protection. As other businesses move online, they may copy some of your own website and design, so a copyright clause can at least alert visitors to your website that you intend to protect your intellectual property and caution them against copying it.

As a practical tipdo not copy someone else’s website content. It is copyright infringement. If you are checking out what your competitors are doing and want to create something similar, at least choose a competitor on the other side of the world who might have a totally different client base. Don’t copy your local competitor just down the road and expect them not to get upset!

Be innovative. Even if you sell hard products, you can use your online environment to create membership communities, offer education, host competitions etc.

Goods Online

If you manage a type of retail or goods-based business, necessary terms and conditions would include your refund and return policy. Ideally this would set out in very clear terms what the customer should expect in the event that they sought a refund or wanted to return their items.

Your customer must be aware of your terms and conditions before purchase for them to be binding. It saves a lot of hassles and time down the track if your terms of trade are clear and easy to access. It is worthwhile noting here that some terms and conditions cannot override Australian consumer guarantees. Any attempt to limit the Australian Consumer Laws (ACL), is invalid. Consumer guarantees now apply to products and services with a value up to $100,000, regardless of who the purchaser is. 

We can help you navigate your obligations under Australian Consumer Law.

Interesting Recent Cases

Consider the 2019 case of Australian Competition Consumer Commission (ACCC) v Jetstar.

Jetstar tried to present their air fares in a way that excluded any right to a refund for the cheaper air fares. The ACCC commenced proceedings against Jetstar for false and misleading representations, as well as breaching the automatic consumer guarantees that cannot be excluded, restricted or modified, no matter how cheap the air fare was for the consumer.

The Federal Court ordered Jetstar to pay a financial penalty of $1.95 million for the breaches as well as an undertaking to commit to amend its policies and practices to ensure they are consistent with the ACL. This undertaking was court-enforceable if they did not comply.

Another recent case that illustrates the importance of having express terms and conditions is the case of Hardingham v RP Data. Hardingham was a real estate photographer who had an exclusive licence with his business ‘Real Estate Marketing Australia Pty Ltd’ (REMA) for the copyright of his works. He had an ongoing informal oral agreement between him and the various real estate agencies for the use of his photographs and floor plan images for the agencies marketing campaigns. He did not have any express terms and conditions in place between him and the various agencies.

These agencies would then upload his work to Realestate.com.au for the marketing campaigns. In order to proceed with the upload of the photographs, the agency (often a subscriber) would need to agree to the terms and conditions on the website as set out by Realesate.com.au. The terms and conditions on the Realestate.com.au website contained a sub-license to “other persons” in a detailed form.

Realestate.com.au then sub-licensed to RP Data who then published the photographs on its websites and superimposed a logo on the images. RP Data is a subscriber-only database of real estate sales and rental history. After an appeal to the Full Court of the Federal Court of Australia, the court held by 2:1 majority, that the sub-licence to RP Data who then used and manipulated the photographs and images was an infringement of copyright.

The court held that the original owner of the copyright did not agree to the sub-licence when it verbally agreed to the various real estate agencies uploading the images to Realestate.com.au.

We have assisted professional real estate photographers to prepare appropriate terms and conditions for the use of their images to ensure they are paid for use.

This case is a good example where the copyright owner might have avoided going through the expensive and lengthy court process, and the subsequent need to appeal, to receive a judgement in his favour, if he had express terms and conditions that explicitly set out the use of the photographs and images.

Since he had only oral agreements between him and the real estate agencies, the court had to determine if the implied terms were so obvious and were necessary to give business efficacy to the contract. Thankfully the Full Court found that there was such an implied term in this instance.

COVID-19 Impact on Terms and Conditions

Consider another recent case that relied on terms and conditions under a contract that was affected by COVID-19 shutdowns is the case of Dyco Hotels Pty Ltd v Laundry Hotels (Quarry) Pty Ltd. This case concerned the sale of the Quarryman Hotel in Pyrmont, New South Wales (NSW). The contract was signed on 31 January 2020, with the date of settlement set for 27 March 2020.

The contract price was for $11,250,000 and included the associated hotel licence, the gaming machine entitlements and the hotel business itself. The deposit paid by the buyers was $562,500.

In the sale contract, there was an Additional Clause 50.1 which imposed various obligations upon the vendor, including the obligation to continue to operate the business “in the usual and ordinary course as regards to its nature, scope and manner”.

On the 23 March 2020, 4 days before settlement, public health orders issued shutting down the majority of hospitality services. This made it unlawful for the hotel to continue to operate, except for takeaway food and drinks, in accordance with the public health directions.

The buyers argued that the business sale was frustrated by the public health orders since the hotel was no longer able to operate in the “usual and ordinary course as regards to its nature, scope and manner”. They asked for return of the $562,500 deposit and claimed the value of the assets decreased by $1 million due to the public health orders.

The vendor disagreed.

The vendor’s position was that the hotel continued to trade as a going concern within the confines of the health orders and in accordance with the legal restrictions that had been imposed upon it. If the vendor had operated contrary to the public health orders, it would have placed the future operation of the business in jeopardy, including the hotel licence to operate. This would have damaged the goodwill of the hotel. The vendor also argued that they were entitled to terminate the contract, retain the deposit and seek damages for the loss of the bargain.

The NSW Supreme Court found in the vendor’s favour and held that the contract was not frustrated by COVID-19 public health orders. The vendor was entitled to keep the $562,500 deposit and recover damages as well for the loss of bargain. The court assessed the damages to be $900,000 and deducted the deposit of $562,500 from that amount.

Although the terms and conditions in this case were not online but contained in sale documents, it does demonstrate that carefully considered terms and conditions can make a big difference to the outcome of a dispute. 

The purchasers might have been better protected if there were any contractual warranties given by the vendor about the future financial performance of the hotel. Since there were no warranties given, the purchasers accepted the risks.  The purchasers were experienced in the Sydney hotel operations business and understood the various potential risks of legislative changes, despite not being familiar with the impact of a pandemic.

This is a good illustration of the impact of the COVID-19 pandemic on terms and conditions and contemplation of the risks associated with business operations. Following the lessons in this case, a vendor would be wise to include business conduct obligations under the contract that can be altered or changed to comply with public health emergencies. A buyer would be wise to include options to terminate the contract in the event where the value of the business has dramatically dropped due to unexpected circumstances.

Another COVID-19 impact on the operation of businesses can be seen in the recent case of Flight Centre Travel Group Limited Trading as Aunt Betty v Goel. Terms and conditions were online and agreed to by click wrap agreement – where the buyer has to check a box stating they agree to terms and conditions before being able to complete the purchase.

In the first hearing, Goel had been awarded a refund on the basis that the purchased flights hadn’t been received.

On the 5 November 2019, the customer (Goel) had made a booking online, for the return flights from Sydney to Delhi scheduled for flights during April 2020. The $2,336.30 flights were with Malaysia Airlines which cancelled the flights during March 2020, when COVID-19 public health orders restricted international travel.

The terms and conditions stated that Flight Centre was only agent and not responsible for delivery. If that were the case, Malaysian Airlines would have been liable to provide the refund, not Flight Centre.

The case we are referring to was an appeal by Flight Centre where it argued that the business Aunt Betty operated as an agent, and not the supplier of the service and therefore was not liable for actions by the airline in cancelling the flight. It would have set a damaging precedent for Flight Centre to be liable to refund all booking costs where it had not received the bulk of those funds, which had been passed on to the suppliers (like Malaysian Airlines) pending delivery.

The tribunal, on appeal, held that Goel would have been aware at the time of booking that he had booked the flights with an agent and not the actual airline carrier itself. It is interesting to note that the court decided that the booking could not have been made without the positive acknowledgement of the terms and conditions on the website. The court also decided that there was no breach of the consumer laws by the agent, and it was not liable to provide the refund.

Conclusion

In order to operate your business successfully, you need to be mindful of the ever-changing landscape that both COVID-19 public health emergencies create, and the increasing demands shaped by conducting more business in the online space.

The pass of change suggests you have your terms and conditions of trade reviewed and updated more frequently, with consideration of all aspects of a transaction.

If you are contemplating signing any contracts for business sales or purchases, it would also be advisable to ensure you are covered in the event that COVID-19 emergency public health order impacts adversely on the contract price and business valuation or operational requirements.

The new year is also a good time to evaluate your privacy policies and disclaimers, as well.

How can Onyx Legal help you?

We love reading and writing terms and conditions. Someone has to do it. It’s fun for us. If your terms and conditions are like a different language for you and you’d rather not think about them, let us help. Book a time to chat with one of our team about how we can help update your online terms sooner rather than later.

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.

COVID-19 and Signing Contracts

COVID-19 and Signing Contracts

COVID-19 and Signing Contracts

COVID-19 and Signing Contracts

 *Last updated 12 December 2021*

Very few documents are legally required to have a ‘wet’ signature. That is a signature applied using pen and ink. 

Most business contracts you enter into don’t require a ‘wet’ signature and may not require a signature at all to be binding. Contracts are not formalised by a signature; a signature simply serves as good evidence that a person agreed to the contents of a contract. Some examples of documents that would normally need a wet signature are: 

  • Wills
  • powers of attorney
  • deeds
  • documents that need to be witnessed, verified or authenticated in some way
  • some court documents
  • some documents for lodgement with land titles offices
  • some governance documents, such as minutes of meetings of directors
  • some regulatory documents, depending on the regulator 

Since the introduction of electronic transactions legislation by the Australian federal government and most Australian state and territory governments around the year 2000, it has been possible to sign a lot of agreements electronically

Rules do apply. 

Broadly speaking, the requirements for using an electronic signature are:

  • you must be able to identify the person signing, either directly or through additional evidence
  • the person signing must agree to be bound by their signature
  • the method for identifying the signatory and his or her intention in the circumstances is reliable
  • all the parties agree to accept e-signatures, which agreement can be inferred by conduct 

Provided that all parties agree, a typewritten name can be used as a signature.  Consider that you may be one of many people in business who have a formal typewritten signature as a standard footer to your emails.

Case study

In Stellard’s case (Stellard Pty Ltd & anor v North Queensland Fuel Pty Ltd [2015] QSC 119) a signature was required because the transaction involved property. There requirement for a signature was in s.59 of the Queensland Property Law Act, which says “No action may be brought upon any contract for the sale… of land… unless the contract… or some memorandum or note of the contract, is in writing, and signed by the party to be charged…”

All exchanges relied upon were either via email, or by conversation. Stellard argued that they were entitled to rely on NQF’s acceptance of their offer to purchase, contained in an email, by virtue of the Queensland electronic transactions legislation. The Court decided that:

 

  • the parties agreed to accept electronic signatures through their conduct, being negotiation via email including stating the offer in the body of the email and receiving the acceptance in the body of an email
  • the identity of the person sending the email acceptance was found through evidence of conversations held earlier than the date of the email, and an admission of the sender that they were the person sending the email

What does that mean for you? 

Be aware of what you are negotiating and agreeing to by email. 

CHANGES TO 10 DECEMBER 2021

UPDATE: Electronic signing of certain documents has been made permanent in Queensland, Victoria, and New South Wales. We are yet to see if the other states will follow suit.

Unfortunately, electronic execution by companies and the holding of hybrid and virtual meetings have not yet been made permanent under the Corporations Act and will be considered at the next Senate sitting in 2022.

CHANGES TO 1 JULY 2021

Federal

On 23 April 2021 ASIC extended their temporary ‘no action’ position on the following activities for reporting dates up to 7 July 2021:

  • the holding of meetings using appropriate technology;•
  • electronic dispatch of notices of meeting including supplementary notices; and•
  • public companies holding AGMs within an additional 2 months on the extended term.

There is no allowance or exemption for signing documents electronically. Wet signatures are still required for minutes of meeting, although scanned copies of documents can be kept.

ACT

On 20 February 2021 The ACT Parliament extended the timeframe of relevant COVID legislation.

NSW

On 25 March 2021 NSW Parliament extended COVID timeframes under a variety of legislation with the COVID-19 Recovery Act 2021, to 31 December 2021, but excluded the Electronic Transactions legislation, which had been previously amended on 28 September 2020 by the Stronger Communities Legislation Amendment (Courts and Civil) Act 2020 until 1 January 2022.

QLD

On 14 April 2021 amending legislation was passed by QLD Parliament to extend the expiry date of various legislation impacted by COVID measures to 30 September 2021. However, the time available for electronic signing and witnessing of Wills and enduring powers of attorney ended on 1 July 2021.  

SA

Changes were made by SA Parliament in February 2021.

VIC

On 23 March 2021 Victoria led the way for all Australian jurisdictions by permanently adopting changes to the Electronic Transactions (Victoria) Act 2000, enabling witnessing of signatures by audio visual link, and the electronic creation and signing of Deeds and mortgages.

No other changes were tabled before parliaments around the country before 31 March 2021.

Signing documents during COVID-19 restrictions

After COVID-19 was declared a pandemic and Australian federal and state governments started enacting temporary legislation for greater flexibility, laws were introduced to change the way certain documents, which usually required a wet signature and a witness, could be signed using electronic means.

Changes are not consistent around Australia. Each state or territory has slightly different requirements and not every state or territory enacted relevant laws, so you do need to be conscious of the location of the person signing, and the applicable rules in that place, and when those rules will expire:

 

 

Legislation

Start Date

Expiry Date

Federal

Corporations (Coronavirus Economic Response) Determination (No. 3) 2020

5 May 2020

EXPIRED*

ACT

COVID-19 Emergency Response Act 2020

14 May 2020

12* months after COVID emergency ends

NSW

Customer Service Legislation Amendment Act 2021 (NSW)

Electronic Transactions Amendment (Remote Witnessing) Act 2021 (NSW) 

 

 

PERMANENT CHANGE

NT

N/A

 

 

QLD

Justice and Other Legislation Amendment Act 2021 (QLD)

 

 

PERMANENT CHANGE 

SA

Oaths (Miscellaneous) Amendment Act 2021 (SA)

Oaths Regulations 2021 (SA)

 

PERMANENT CHANGE – Affidavits and Stat Dec

Tas

Notice under Section 17 of COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020

3 Apr 2020

EXPIRED 

Vic

Justice Legislation Amendment (System Enhancements and Other Matters) Act 2021 amending Electronic Transactions Act

 

PERMANENT CHANGE

WA

COVID-19 Response and Economic Recovery Omnibus Act 2020

12 Sept 2020

31 Dec 2021

*The above table mentions only the first applicable legislation, which is likely to have been amended by further legislation over time, resulting the expiry dates listed. Expiry dates are subject to change.

Signing of corporate documents under australian federal law during covid

Federal law covers signing for and on behalf of companies, as well as the holding of shareholder or member meetings electronically. The legislation was due to expire on 5 November 2020 but was extended.

The Corporations Act is specifically excluded from electronic transactions legislation, so you will normally require a wet signature of directors or secretaries who are signing a document in accordance with s.127 of that Act. The document can still be shared electronically, it just cannot be signed electronically.

Pursuant to s.127 you would usually require two directors, a company secretary and a director or a sole director and secretary to sign on behalf of a company. You usually require both people (if two are signing) to sign the same document on behalf of the company.

The temporary legislation allows for electronic application of signatures when signing for a company, which can occur on separate documents, provided that each document contains the entire contents of the document, and a method was applied to identify each person signing and their intent to be bound, and that method was reliable.

A document signed on behalf of a company another way can still be binding. Section 127 does not limit the ways in which a company can sign a document. 

Permanent changes to the Corporations Act will be considered at the next Senate sitting in 2022 which would allow for electronic signatures and virtual meetings.

Nothing in the legislation appears to enable the electronic signing of minutes of meetings, whether of a board or shareholders.

Signing documents in the Australian Capital Territory (ACT) or New South Wales (NSW) during covid 

Measures were introduced to allow for the witnessing and attestation of documents including affidavits, Wills, powers of attorney and health directives. Witnessing can be done by audio visual link provided that:

  • both video and audio are active
  • the witness watches the signatory sign in real time
  • the witness confirms the signing was witnessed by signing the document or a copy of it
  • the witness is reasonably satisfied that the document signed and the document witnessed are the same
  • the witness includes a statement on the document about how the document was witnessed in accordance with the ACT legislation.

To demonstrate confirmation of witnessing the original signature, that can be done by signing a full copy of the document (counterpart) as soon as possible after witnessing the original or signing a scanned copy of the document signed by the original signatory.

These changes have now been made permanent in New South Wales.

Signing documents in the Northern Territory (NT) during covid

Although the NT does have electronic transactions legislation, no specific amendments have been made to that legislation as a result of COVID. As a result, any documents that needed a wet signature in the NT before COVID restrictions started, still do.

Signing documents in Queensland (Qld) during covid

UPDATE (8 December 2021): Queensland has made permanent the electronic execution of certain documents such as deeds and general powers of attorney for businesses. However, the electronic execution of wills and enduring documents has NOT been made a permanent change and had expired.

Queensland appears to have adopted the most complicated provisions. In Queensland, the witnessing a Will, powers of attorney, affidavit or statutory declaration can be completed by audio visual link, provided that:

  • the person witnessing is an Australian legal practitioner, justice of the peace (JP) or commissioner of declarations, notary public or other person mentioned in the regulations
  • the witness completes a certificate that is kept with the document
  • the witness sees the person sign in real time
  • the person signing signs each page of the document
  • the witness is satisfied that the signing person is making the document freely and voluntarily

Confirmation of witnessing, in addition to the required certificate, can be done by signing each page of a counterpart or scanned copy of the document signed by the original signatory, as soon as possible.

There are additional variations for affidavits and statutory declarations.

Documents other than Wills and enduring powers of attorney can also be signed electronically provided the method used to identify the signatory and their intend to be bound is reliable, in the circumstances.

Deeds can be signed electronically without a witness provided that the document is clearly identified as a deed. This applies to both individuals and companies, and for companies, where a second director or secretary is to sign, they can sign a counterpart.

Signing documents in South Australia (SA) during covid

While South Australia made amendments to make meetings by electronic means easier, rather than expanding the ability to apply electronic signatures to documents they simply expanded the categories of professional people documents could be sworn or attested in front of.

Witnessing documents by audio visual means is expressly excluded.

Some alterations were made for property related transactions in June 2020.

Signing documents in Tasmania (TAS) during COVID

Rather than specifying document, in Tasmania the legislation is focused on actions taken. So where a document requires a physical actions such as the making, taking, receiving, swearing, signing or witnessing of a document, those actions can be completed electronically, or by audio visual link provided that:

  • the witness watches the signatory sign in real time
  • the witness attests to the signing by signing the document or a copy of it
  • the witness includes a statement on the document about how the document was witnessed in accordance with the Tasmanian legislation.

Signing documents in Victoria (VIC) during COVID

Victoria expanded the categories of people who could take oaths and affidavits first, before then introducing broader measures for the use of electronic signatures. Timing is very important in Victoria. A witness must apply their signature on the same day as the person signing the document.

Witnessing is permitted by audio visual link provided that:

  • the witness watches the signatory sign in real time
  • the witness confirms the signing was witnessed by signing the document or a copy of it on the same day
  • the witness includes a statement on the document about how the document was witnessed in accordance with the Victorian regulation.

There are specific rules around attachments, counterparts and copies of documents that must be met to comply with Victorian requirements.

Under the Victorian Oaths Act a person can electronically write anything on a document, sign, initial or date it electronically under the COVID rules. There is also provision for Wills to be signed and witnessed by audio visual link, provided that the actions result in one document with all signatures and statements relevant to any signing by electronic means, and that all actions are taken on the same day.

Signing documents in Western Australia (WA) during COVID

Witnessing can be done by audio visual link provided that:

  • both video and audio are active
  • the witness watches the signatory sign in real time
  • the witness is satisfied that the document signed and the document witnessed are the same
  • the witness signs the document or a copy of it
  • the witness includes a statement on the document about how the document was witnessed in accordance with s.23 of the WA legislation.

To demonstrate confirmation of witnessing the original signature, that can be done by signing a full copy of the document (counterpart) as soon as possible after witnessing the original or signing a scanned copy of the document signed by the original signatory.

Want more information?

Where documents do need to be signed in a particular way, or witnessed, to be enforceable, then it’s important you understand the requirements that apply in the place of the person signing if you want to be able to rely on those documents in the future. 

If you need help with deeds, agreements, Wills or powers of attorney and worry about what COVID rules apply, contact us. 

Online Learning: Protecting Your Business Online

How to Deal with Threatening Legal Letters

How to Deal with Threatening Legal Letters

Want to know how to handle nasty legal demands?

I’m on the road in between meetings today and just thought I’d share a story with you. I was speaking to a friend earlier and they said, “Oh, that’s such a great story. More people should know it.” So I thought I’d share it with you today.

We had a client who received one of those nasty letters of demand in the mail saying, “You’re in breach of our trade mark. Hand over your domain name, hand over your website. If you don’t do it in 24 hours or seven days or something ridiculous, then we’re going to take you to court and see you for a whole bunch of money.

Now the client came to us and said, “Can you represent me in court proceedings?” I responded, “Hey, let’s stop and look at this in the moment and see if that is your only option.

Court is not the only option

When we looked at the value in the client’s business, it was not in the trade mark. This is a client who had been selling a product that they imported from the UK and the company in the UK had registered the trade mark in the UK. There was a competing company in the US and they had registered the trade mark in the US. The American company came to Australia. They registered the trade mark in Australia. They waited a couple of years and then they wrote this nasty letter to our client saying, “You’re in breach of our trademark.” Our client had been trading in Australia before they started trading in Australia.

There are a whole lot of legal, technical arguments involved. We could’ve gone to court. We could have argued prior use and all sorts of things, but court proceedings take time and cost money. So the prospect of our client going to court was just not attractive. We were looking at maybe three years, $150,000 and no guarantee of a favourable result. We would have a result one way or the other, but we couldn’t guarantee it would help our client.

Looking at the business and knowing that the revenue wasn’t in the trade mark, we spoke to the supplier in the UK. They were happy to re-brand or they were already in the process of re-branding some of their products. So they said, “Okay, what we’ll do is we will assist you in re-branding.” They registered a domain name with the new brand. They registered the new brand as a trade mark here in Australia. Our client put together a 90 day plan, or at least we helped our client put together a 90 day plan to re-brand their business and to shift everything across to the new brand.

Because it was a 90 day plan and we made some promises to the American company about the process we were going to go through, they gave us that time because 90 days is a hell of a lot better than going through court, and there are certain requirements and rules around proper negotiation and all that sort of thing and trying to reach a commercial resolution. So the American company just had to wait.

Is there a better strategy?

In that 90 days, our client shifted his entire business onto the new brand. Now the value was in his database, so through a series of communications with the database, the whole database was shifted across to the new brand.

Our client did have to spend money on re-branding and shifting that database across, but he didn’t lose any revenue and most importantly didn’t lose any business. So once that process was complete, our client had a new website up. He had the entire database marketing to them and was changing them over to the new brand. We’ve got an agreement with the American company to say that we could sell out the end of the branded supply and not stock any new supply with that trade mark.

In the end, the American company bought our client’s domain name. Now, the reason behind that was the domain name was .com which means it can be used internationally, so my client still had the right to use that domain name in jurisdictions other than where there was a registered trade mark, or where he had permission. So he could still use it in the UK where they had the mark registered or his supplier had the registered trade mark and was happy for him to use it. In order for the American company to get hold of that domain, they had to buy it.

Instead of three years and $150,000 in court with no certain result, what we did is introduced a strategy enabling our client to re-brand in 90 days, shift his business across, not lose any money, and because the domain name was bought, his legal fees were effectively halved. So great, great result for the client, and just a really good example of the fact that there are options. Our client walked away with a stronger business and a protected brand.

  • Don’t think just because you get a letter of demand that you have no choice but to go to court.
  • Don’t think that you might not have an argument because there’s a whole lot of technical issues involved in legal cases, and sometimes it’s not all against you and sometimes there’s not all in your favour.
  • There are options and it’s worth investigating what those options are before you go and get started. 

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.