Taking up your former employer's business opportunities after resigning
Startup

Taking up your former employer’s business opportunities after resigning

Photo by Azamat Zhanisov on Unsplash

Taking up your former employer’s business opportunities after resigning

Updated: 6 January 2020

You’ll likely have access to business connections and opportunities after working with a company for some time, especially as a director with access to key information.

So should you make use of the contacts and opportunities?

Here’s what you need to know based on a court decision.

The case we’re going to look at is Southern Real Estate Pty Ltd v Dellow [2003].

While it is from 2003, it’s still cited in decisions as recent as 2018 like Advanced Fuels Technology v Blythe & Ors (2018). 

Key principles

So, if you are thinking about pursuing business opportunities, consider these key principles from the Southern Real Estate case: 

1. Best interests of the company

Directors have both statutory and fiduciary duties.

Directors must act in the best interests of the company and not promote their own interests or the private interests of others.

2. Planning for your resignation

You can't act against the company’s interests with a view to resignation and involvement in a competing business. This is a clear breach of both statutory and fiduciary duties, even if those steps involve no misuse of confidential information.

3. Director’s statutory and fiduciary duties continue

The statutory and fiduciary duties of directors don’t simply end at the point of resignation. 

But, there is uncertainty as to when a former director might properly begin to compete with the company.

However, here’s what we do know:

If a former director secretly prepares to compete with the company right after resignation, and does so, there is no need to determine at when director commenced a competing business - there's a clear breach of fiduciary duties.

These principles are important to learn because of a myth about the lack of a restraint or an employment contract for that matter.

Number #1 myth - no employment contract or no restraint = no restraint

The myth - if there’s no restraint in an employment contract the employer can’t take action against you. 

Now, it's a myth because we know if you are a director, you have fiduciary duties.

And if you are an employee, you have a duty not to use your position (section 182 Corporations Act) or information (section 183 of the Corporations Act) to gain an advantage or harm your former employer.

We know this because of Advanced Fuels Technology v Blythe & Ors [2018] (AFT), which we discussed in Director and employee duties after resigning from an Australian company.

In the AFT case - there was no restraint in an employment contract, but the director and an employee were accused of breaching their duties under the corporations Act 2001.

Key take aways

If you are a director or officer, don’t plan your exit while you are working for a company.

If you are an employee, don't use information you gained from your employer to set up a competing business (regardless of whether you do or don't have an employment contract or post-employment restraint in one).

Also - if you have made a mistake, get good legal advice before you reply to any letter telling you to stop competing; commonly known as a cease and desist letter.

Do you have questions or comments about taking up business opportunities after employment? Be sure to leave them below.





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Director pay at an Australian startup company
Startup

Director pay at an Australian startup company

Photo by Mimi Thian on Unsplash 

Director pay at an Australian startup company

Updated: 7 December 2019

If you are starting up in Australia, here’s what you need to know about director pay.

First, the Corporations Act 2001 applies to Australian companies. However, it does not prescribe director's fees. 

Rather, there’s a replaceable rule (non mandatory rule) about director pay - it’s in section 202A of the Corporations Act 2001 and here’s what it says: 

The directors of a company are to be paid remuneration that the company determines by resolution.

The company may also pay the director’s travelling and other expenses that they may properly incur:

  • In attending directors meetings or any meetings of committees of directors; and

  • In attending any general meetings of the company

Why some startups don’t pay a director fee

We know the the obvious reason is cash - a lack of it.

But the other linked reason is that one or more directors may have contributed capital and the priority is to reimburse them first before directors fees are paid out.

How to deal with directors pay in a founders agreement

If there are multiple directors (founders), you could set up a founders agreement that deals with founder duties and give yourself some flexibility when it comes to pay.  

Flexible option example

Below is a sample clause that's consistent with the replaceable rule above:

The company will first repay the personal contributions by [director name] and [director name], after the repayment, the Company board will make decisions about director pay by ordinary resolution.

No director fee example

The founders will not be paid a director’s fee..

Now this clause does not mean the director will never be paid for any of their contributions to the Company. It simply means, for holding the position of director, the director won’t be paid a fee.

Now these are early stage options to give a startup flexibility.

Unpaid forever?

Hopefully not!

The concept of non paid directorships is not that uncommon in Australia. 

In fact, you’ll find not-for-profit organisations often have unpaid directorship positions. Board members may include a mix of seasoned business professionals and other members that want to get board experience.

Should director’s remain unpaid forever?

Probably not. If the director duties expand as the company grows, you may add other directors and may want to attract directors with business acumen to sit on your board by paying them!

Also, you’ll likely want to start compensating directors at some point especially if they double up as employees in the business; employees have rights under Fair Work Legislation including the fundamental right of getting paid for work.

Pay implications 

Get tax advice if you are going to pay anything to anyone in your startup. Accountants can tell you all about the different tax treatment for one-off service fees and an ongoing payment. 

Founders agreement vs employee agreement

I always recommend a founders agreement in the early days when the basics of duties, work location, resource contributions need to be set out in writing.

For 2 or more founders, founder's agreements are practical and are inexpensive, but you may not want to use them forever.

At some point an employment agreement will serve you well when founder roles are well defined and you want to outline the details of position and pay in a separate agreement. 


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The difference between legal information and legal advice
Startup, Startup Contracts

The difference between legal information and legal advice

Photo by rawpixel on Unsplash

The difference between legal information and legal advice

Updated: 7 December 2019

So you've probably seen a few disclaimers that read like this 'legal information, not a substitute for legal advice'. We use a disclaimer like this ourselves on our website including our downloads.

I'll explain the difference because its important to know.

Legal information

Legal information is generic. It explains a process, a definition or provides a framework for how something should work. 

Non-lawyers may also provide information.

So, if you are a startup searching the internet for useful resources to use (like this very article or even template downloads) - that's information.

Why?

Information is NOT tailored to your situation, it's generic.

Legal advice

Now, on the other hand, legal advice is tailored and typically given by a qualified lawyer. 

Legal advice can be written, verbal or a combination. 

To qualify as advice, the lawyer needs to know your situation, the problem, query or your ideal outcome. And, with this knowledge, a lawyer will give you legal advice or tailor a document based on your situation.

Below are some examples. 

Legal information examples

Legal information may include:

  • article, blog post or fact sheet;
  • template legal agreement (that a lawyer is not updating after your download), you simply download and use 'off-the-shelf'; and
  • it’s always generic and may not be applicable to your situation.

Legal advice examples

Below are some examples of legal advice:

  • you consult with a lawyer and you explain your situation and your lawyer advises you; or 
  • a lawyer prepares legal agreements based on your instructions and their advice to you; and 
  • it’s always specific to your situation.

I wish you every success in your ventures!





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How to serve documents on an Australian company
Startup

How to serve documents on an Australian company

Photo credit:  Raw Pixel, Unsplash 

How to serve documents on an Australian company

Updated: 7 December 2019

Do you need to know how to serve a legal document on an Australian company?

Below are the rules from the Corporations Act 2001 (Cth) and the Service and Execution of Process Act 1992 (Cth) to guide you.

When the Corporations Act won't apply

Now, to avoid any confusion, even if the Corporations Act covers a service rule, it won't apply if the  Service and Execution of Process Act applies.

With that in mind, let’s take a look at the service rules below.

Also, for simplicity, I have included the service rules in the table below.

Service rules

Service Rule

Corporations Act 2001 (section 109X)

Service and Execution of Process Act 1992 (Section 9)

Registered Office

Leave the document at or post it to a company's registered office.

Director

Deliver the document personally to a director of the company who resides in Australia or in an external Territory

Liquidator

If a liquidator of a company has been appointed, leave the document at, or post it to the liquidator's office using their most recent address lodged under the Corporations Act 2001 (Cth).

Administrator

If an administrator of the company has been appointed - leave the document at, or post it to the address of the administrator in the most recent notice of that address lodged with ASIC.


Director & Secretary

Leave the document at, or post it to the alternative address notified to ASIC. However, this only applies to service on the director or company secretary:

  • in their capacity as a director or company secretary; or
  • for the purposes of a proceeding for their conduct as director or company secretary.


Registered body

Leave the document at, or send by post to the body's registered office.


Registered foreign company

Leave the document at or send by post to:  

(a) the address of a local agent of the foreign company notice of which has been lodged under the Corporations Act 2001; or                    

 

(b) if a notice or notices of a change or alteration in that address has or have been so lodged--the address shown in that last-mentioned notice or the later or latest of those last-mentioned notices.


Key points

You can serve a document on an Australian company following the rules set out in section 109X of the Corporations Act and section 9 of the Service and Execution of Process Act. 

Finally, if a service rule is covered in section 9 of the Service and Execution of Process Act, then section 109X of the Corporations Act won't apply. 





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How your accountant and lawyer can work together to help your startup
Startup

How your accountant and lawyer can work together to help your startup

Photo credit:  Raw Pixel, Unsplash 

How your accountant and lawyer can work together to help your startup

Updated: 7 December 2019

Did you know that your accountant and lawyer can work together to help your startup? Below are some handy tips about how both can help. 

Your business structure

An accountant or a lawyer can help you set up the start-ups business structure.

Below are the 4 business structure as you can choose from in Australia.

  • sole trader;
  • partnership;
  • trust; and
  • company.

Now, it's a good idea to have your structure set up before you start entering into business contracts.

Getting through the first 6 months

Both a lawyer and accountant can help you to prioritise your setup work in your first 3 to 6 months when it's most intense. Here’s an idea of the sort of work you may need to complete: 

  • registrations and business licences
  • purchasing business supplies
  • entering into vendor and supplier contracts
  • internal agreements like founders agreements & shareholder agreements 
  • hiring staff, issuing worker contracts, payslips and record keeping
  • registering for GST and PAYG
  • lodging business activity statements
  • setting up and maintaining a book-keeping system
  • entering into supplier contracts 
  • leasing a premises and business supplies and 
  • keeping company records

Before you enter contracts 

If your accountant has set up your business structure and it involves a trust, or you’re just unsure, you should ask your accountant which structure to use before you enter a contract.

Using the right structure is important for tax planning.  For example, it may make more sense to use one particular structure over another.

Shares 

Also, shareholder agreements usually have financial covenants about the state of the company’s finances, and an accountant can help you check company financials to confirm they are correct.

Below are some examples of financial covenants.

  • the books and Accounts of the Company truly and fairly reflect the Company’s transactions, finances, assets and liabilities;
  • the Company has lodged or filed all tax and duty returns for all taxes including goods and services tax, income tax, sales tax, fringe benefits tax, payroll tax, group tax and WorkCover levies where applicable and has paid all amounts owing as they fall due and has paid all employees superannuation entitlements to the appropriate trustee where applicable.
  • no claim has or will be made against the Company for payment by the Company pursuant to the provision of the Income Tax Assessment Act 1936 of any tax;
  • the Company has met all deadlines for repayment of its debts; and
  • no petitions, notices or proceedings have come to the Company’s notice, which could result in it being wound up. No orders or resolutions have been made or passed to place the Company in liquidation or provisional liquidation.

Preparing and keeping company records

Now, when you first set up your company, you are going to need some company records that either an accountant or lawyer can prepare for you. Below are examples of these records.

  1. officeholder register - a list of the directors and secretaries
  2. director consents
  3. share applications
  4. share certificates
  5. register of shareholders (aka members).

Recap 

Make the most of  your accountant and lawyer’s time by getting their help with your: 

  • business structure 
  • prioritising your administrative setup tasks 
  • contracts; and
  • keeping company records.

Do you have any questions about setting up your business?

A good business lawyer can give you some guidance about how your accountant can help you. 

I wish you success in your ventures!





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A practical guide to looking up an Australian business online: ABN and ASIC lookup tips
Startup

A practical guide to looking up an Australian business online: ABN and ASIC lookup tips

A practical guide to looking up an Australian business online: ABN and ASIC lookup tips

Updated: 8 December 2019

Knowing how to look up an Australian business online is an important skill.

A company is a legal entity, it can sue and be sued, but you can't sue a business name. 

And if you sue someone personally but you really meant to sue a business, then you've wasted time and money in court. 

Before we go any further, here's a breakdown of the jargon: 

  • ABN = Australian Business Number;
  • ACN = Australian Company Number; and 
  • ASIC = Australian Securities and Investment Commission.

How to start researching a business

You can look for business details such as an ABN or ACN on items such as: 

  • invoice
  • quote
  • receipt 
  • letterhead; and 
  • catalogues

Now you may want to look up an Australian business online for a number of reasons, below are some examples.

Business contract

For a business contract to be legally binding,  you need to record the correct parties business details. 

So it's a good idea to look up a business and make sure that you are have their correct details.

Court case

 If you ever need to take legal action against a business, you need their correct details on your court paper work.

Researching a business partner

Understanding if your business partners has a registered Australian business is important before you do business with them or buy a business. 

So here’s a practical guide to looking up an Australian businesses online.

Let’s start with an ABN lookup because we can get a lot of information from this lookup.


You can complete a search using the business name or ABN. For this example, we are completing a lookup using the business name "collective hub"

ABN lookup

ABN lookup

Here are what the search results look like on the next screen. You can click on the correct business name to get more detailed information.

ABN lookup search results

ABN lookup search results

In the next screen pictured below, we can see business details including: the company name, the fact that the company is private, the company registration date and the registered business names used by the company. 

So in this example, the correct legal entity is Messenger Group Pty Ltd and it uses a number of business names such as Collective Hub, Kick Start Smart and The Messenger sometimes referred to as trading as names or t/a in short form.

Detailed results

Detailed business results

If you are looking up a sole trader, you won't need to complete any of the extra steps for ASIC as described below.

Looking up company details

Now that you know the company name, you can go to the ASIC website and lookup the entity "Messenger Group". 

On ASIC's homepage, you can go to the right hand side of the screen and select Companies and organisations.

ASIC's homepage

ASIC's homepage

Below is the next screen you will see. Select Organisation & Business Names from the drop down. And in the box below the dropdown, enter the company you are searching and click Go. In this example, we are searching for Messenger Group.  

ASIC search screen

ASIC search screen

Next, you will see the search results in a screen that looks like this one below. You can select the correct company to get more information about its director, shareholders and registered address.

ASIC search results

ASIC search results

When you click on the correct company name, you can see extra company details like the ones below and you can select either a current company report or a current and historical company information report. We have samples of each report attached so you can see what each report will look like before you buy.

ASIC Company Details

ASIC Company Details

Thrive Leads Shortcode could not be rendered, please check it in Thrive Leads Section!





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3 tips from a lawyer for your startup’s collaborations
Startup

3 tips from a lawyer for your startup’s collaborations

3 tips from a lawyer for your startup’s collaborations

Updated: 8 December 2019

So you have found the perfect business partner for your startup, what should you do now ?

Below are 3 tips for your startup's collaborations.

What is a collaboration?

The term collaborate means to work with someone to produce something.  

First step

First,  you can prepare a summary of the key terms on the 'something' you will create. If you are not comfortable with this, your respective lawyers can also do this for you. The summary terms are sometimes called a term sheet or a memorandum of understanding (MOU).

Keep in mind an MOU is not usually meant to be legally binding but it can be - read the fine print. 

Tip 1: Collaboration Agreement

The collaboration agreement comes after the term sheet or MOU and includes the key terms you have negotiated.

Unlike the term sheet or MOU, a collaboration agreement is binding. Also, this agreement will help you come back to what's important if there is a dispute.

What's included?  Key terms like:

  • Collaboration scope - what the collaboration will involve;
  • Resource sharing - client lists, resources and industry contacts?;
  • Confidentiality - how you will treat & protect each other’s confidential information;  
  • Intellectual property - treatment of intellectual property created before and after the collaboration;
  • Dispute resolution - a clause on how to resolve disputes; and
  • Termination - a clause that deals with ending the agreement.

Tip 2: Do your agreements need to be changed ?

You should consider if you will share resources with your collaborator. Do your agreements change as a result ?:

  • Lease - do you need permission from your landlord to sublease?
  • Insurance - do you need to notify your insurer or include additional workers on your workers insurance policy?
  • Shareholders - do you need shareholder permission for the collaboration?; and 
  • Privacy policy and terms and conditions - do you  need explain new processes customers ?  for example about data collection and use to deliver products ?

Tip 3: Exit strategy 

It's a good idea to think about your exit strategy from the start.

To allow flexibility for an exit,  it is a good idea to cover:
  • Termination - when the agreement will come to an end;
  • Notice - the amount of notice needed to end the agreement;
  • Termination consequences - including handover and return of property;
  • Confidential information; and
  • Intellectual property.

Got questions or comments about collaborations? Leave them below.

I wish you success in your ventures!





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3 legal tips for startups allocating shares to an investor
Startup

4 tips for startups allocating shares to an investor

Useful tips from a lawyer for startups for allocating shares to an investor. 

4 tips for startups allocating shares to an investor

Updated: 8 December 2019

After talks with a potential investor for your startup,  they may give you a term sheet or memorandum of understanding  (MOU) including the key terms for investment.

At this point, it is a good idea to get your own accounting and legal advice for your startup.

In this article we cover legal tips for allocating shares to an investor.

1. The term sheet or Memorandum of Understanding (MOU)

This document will have the key terms for the investment in your startup and these terms may include:

  • voting;
  • director nomination; and
  • cap for employee share option plans (ESOP).

2. The legal agreements

The legal agreements will include a share sale agreement and a shareholder agreement.

A lawyer can help you ensure that the key terms  in the term sheet or MOU are built into your legal documents. 

The share  sale agreement will outline the terms for the sale including:

  • capital and share allotment;
  • any phasing of share allotment;
  • completion date (date ownership of shares transfers);
  • GST; and
  • termination.

The shareholder agreement outlines the rights and responsibilities of shareholders and includes:

  • voting;
  • board meetings;
  • appointment of directors;
  • further financing;
  • budgets and financial information;
  • confidentiality;
  • non competition; and
  • dispute resolution.

3. Harsh terms

A lawyer can help you review your term sheet, shareholder and share sale agreement and advise you of any harsh terms. Harsh terms may include:

  • a requirement to wind up your company in the event of a decision deadlock;
  • voting restrictions;
  • unreasonable restrictions on external capital raising;
  • excessive decision making rights for investors that are not proportionate to their investment; and
  • terms that do not align to original discussions, term sheet or MOU.

4. Share registration 

You will need to register the share sale with ASIC and you can find out more about this step here.

Got questions or comments about allocating shares? Leave them below. 

I wish you success in your ventures!








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An Australian lawyer's guide for your Christmas and New Year’s startup plans
Startup

An Australian lawyer’s guide for your Christmas and New Year’s startup plans

An Australian lawyer’s guide for your Christmas and New Year’s startup plans

Updated: 8 December 2019

Do you have Christmas & New Year's holiday startup plans ? We have you covered.

Are you looking to turn your startup plans into reality over the Christmas and New Year's holidays?  In this post, we help you do just that.

1. Pre-launch

a. Restraint clauses in your employment contract

First, you will want to avoid any legal trouble with an existing employer. 

Are you currently working for someone else? and will you still be working for them when you launch your startup?

If you answered yes, restraint clauses in your current employment contract are worth checking before you launch your startup idea. 

Restraints usually apply during and after your employment to stop you from being involved in a business that competes with your employer's.

Also, restraints will usually be styled like the one below.

b. Restraint period

If an employer takes you to court for a restraint like the one below, first, they will request a 12 months restraint, failing that they will request 6 months and finally failing that, they will seek a 3 month restraint.

“Restraint Period means from the date of termination of your termination with the Company for;

a) 12 months;

b) 6 months; and 

c) 2 months."

c. Restraint area

Like the restraint period above, the restraint area is usually styled the same way:

“Restraint area” means:

a) Australia and New Zealand;

b) Australia;

c) New Zealand;

d) The state or territory in which your employment Was based in the last 12 months of your employment with the company. Except that if you were based in the Australian Capital Territory, The restraint area includes New South Wales;

e) Within 20 km of the GPO Of the close to city to which you lived in the state Or territory referred to in d)  above."

Similar to the restraint period above, if an employer  seeks to enforce this clause in court, they will first seek a restraint in Australia and New Zealand. Failing that, they will request Australia, then failing that New Zealand and so on.

It's important to note that a restraint can only protect the true business interests of an employer  and nothing more.

Finally, if you are ever in doubt about what a restraint clause means for you, you should get legal advice. 

2. Launch

a. Business structure

First, you will need a business structure in place before you open your business for trade.

You can choose from sole trader, partnership, trust and company business structure types in Australia.

The flexibility to allot shares in the company to investors and limited liability are attractive features of a company structure.

Also, in case you were wondering, limited liability simply means that you are only liable up to the value of your company assets. Your personal assets are treated as being separate to those of the company.

Setting up a company usually involves registering an Australian company number,  Australian  business number,  goods and services tax registration,  company tax file number and possibly pay-as-you-go registration. 

An accountant or lawyer can help you choose the best business structure for your startup.

Setting up your ABN may take longer if some of the directors are non residents, this is because proof of identity documents that are required. See the Australian business register website for more information here.

b. Agreements

Our next tip is to have good quality legal agreements in place.

Why ?

Certain legal documents can help you protect and grow your business.

We prepared an article “which legal legal services do I need first for my startup” you can read it here.

In a nut-shell these legal documents may include:

  • Shareholder agreement - outlines shareholder rights and responsibilities such as voting rights, share sale and transfer, dispute resolution and termination;
  • Founders agreement - outlines how founders will work together and can be cheaper than paying for individual employment agreements;
  • Confidentiality deed - Sharing your business ideas with others ? a confidentiality deed can help protect your business ideas.
  • Worker agreements - these agreements include employee, contractor and sub contractor agreements; 
  • Privacy policy and terms and conditions - how you will collect and use information and the terms of your offering; and
  • Stakeholder agreements - for example, client agreements, supplier agreements and other agreements with your business partners.

Got questions or comments about setting up your business over Christmas and the new year? Be sure to leave them below. 

I wish you success in your ventures!





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Business Structures, Startup

4 things to know before you accept an Australian director position

4 things to know before you accept an Australian director position

Updated: 8 December 2019

A company is operated by directors and secretaries. Both have obligations under Australian legislation. 

Limited liability, the ability to allocate shares to investors and a favourable tax regime are all perks of the company structure.

So what does it take to be a director at a startup? Below are some insights to guide you.

1. Who can be a director?

You can be a director if you are at least 18 years old and consent to being a director before you are appointed as a director. Seems like a pretty low threshold right?

2. Australian resident

In addition, to set up a proprietary company, at least one director needs to ordinarily reside in Australia.

3. Legal responsibilities

In addition to the above requirements, you have legal responsibilities.

You should know that there is no such thing as a silent director that exists only on ASIC paper work and because of this, you need to be aware of whats required.

Regardless of whether you are a sole director at a company or one of many, you are legally responsible for how the company is run.

Directors and company secretaries have responsibilities per the Corporations Act, the most noteworthy include:

  • to act in good faith and in the best interests of the company; and
  • to exercise care and diligence; and 
  • to avoid conflicts of interest between the company and your personal interests; and 
  • to prevent the company from trading while insolvent (unable to pay debts when due); and 
  • to assist a liquidator if the company is wound up.

In addition to these general legal responsibilities, there are specific director responsibilities outlined below. 



4. Director responsibilities

Responsibilities are inevitable with your director role. We’ve broken down those responsibilities into 3 categories: (a) general (b) administrative and also (c) company operations.

(a) General

Especially relevant, key general director duties include: 

  • be honest and careful in your dealings at all times; and 
  • know what your company is doing; and 
  • take extra care if your company is handling other people's money.

(b) Administrative

As a director, you are also responsible for administrative duties to keep ASIC records up to date. The most noteworthy include:

  • Your current registered address; and 
  • Personal details of directors - name, date of birth and current residential address; and 
  • company financial records; and 
  • notifying ASIC of certain changes including - registered office, directors, principal place of business; and 
  • paying fees to ASIC - for example, the annual renewal fee.

Also, you may be interested to know we have templates to help you meet your administrative duties, simply click the button below to view our special package.

(c) Company operations

In addition, you are responsible for company operations including to:

  • make sure that your company can pay its debts on time; and
  • see that your company keeps proper financial records; and 
  • acting the company's best interests, even if this may not be in your best interests; and 
  • use any information you get through your position properly and in the best interests of the company. 

Conclusion

If you are in doubt, gather more information before accepting a director position and get your own independent advice.

Finally, you should only agree to be a director if you can carry out the duties, no matter what anyone tells you, being a director will never be just a title, you will have responsibilities that cannot be pardoned by ASIC.

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