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

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

Updated: 21 November 2022

Do you have a brilliant idea and dream of your own startup business but have never had the time to investigate it further? Yes? Well, the Christmas and New Year holidays are an ideal time to investigate the viability of your idea further.

What ideas for a startup business do you have? Do you have a co-founder? If so, future proofing healthy founders relationships is also important.

Here are some tips when starting a business you should consider. Grab a freshly brewed coffee to enjoy as you read through.

Table of Contents

1. Pre-launch

Restraint clauses in your employment contract

1. Pre-launch

Before launching your startup, you need to take look at your employment contract or agreement to ensure you do not breach any restraint clauses it contains.

Restraint clauses in your employment contract

Are you currently working for someone else? Will you still be working for them after you launch your startup? If you answered yes, check the restraint clauses in your current employment contract before launching your startup idea. Understanding these will help you avoid any legal trouble with an existing employer.

A restraint clause is to protect your employer’s legitimate business interests while you are working for them and when you leave. The most common restraint clauses include:

Non-compete which prevents you from either directly or indirectly competing with your employer’s business for a certain amount of time.
Non-solicitation to prevent you from accepting or soliciting work from your employer’s clients for prescribed amount of time.
Non-disclosure is a confidentiality clause that prevents you from disclosing or using your employer’s trade secrets or confidential information.
Non-poaching prevents you from offering colleagues a job or work for a prescribed amount of time.

Restraint period

If an employer takes you to court to enforce a restraint clause, first, they will request a 12 month restraint period. For example, you cannot disclose confidential information publicly for 12 months. If that fails, they will request 6 months and failing that, they will seek a 3 month restraint.

Restraint period means from the date of termination of your termination with the company for:

12 months.
6 months.
3 months.

Restraint area

The restraint area is the geographical area the restraint clause applies to. This could be:

Australia and New Zealand.
Australia.
New Zealand.
The state or territory in which your employment was based in the last 12 months of working with the employer, except if you were in the Australian Capital Territory. The restraint area includes New South Wales.
Within 20 km of the GPO in the closest city to which you lived in the state or territory referred to in (4).

Similar to the restraint period, 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 is 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, get legal advice.

Help me review a restraint clause

Launch

Business structure

Before you do anything you need to decide on a business structure. In Australia you can choose from the following types of business structures:

Sole trader. As a sole trader you have total control of the business and it is the simplest form of business structure.
Partnership. A partnership has two or more people who receive income from the business and share in the losses.
Trust. Where the business is set up as a trust then a trustee becomes responsible for its operations.
Company. Setting up a company is more complex. It is a separate legal identity so it limits your liability. Limited liability means you are only liable for up to the value of the company’s assets. Legally your personal assets are treated as being separate to those of the company.

The complexity between the different business structures is shown in the following table reproduced from ASIC.

	Sole trader	Partnership	COMPANY	TRUST
Business structure complexity	Simple	Moderate	Complex	Highly complex
Cost	Low	Medium	Medium to high	High
Legal obligations	Low	Low to medium	High	Medium
Separate legal entity	No	No	Yes	Yes
Liability	Unlimited	Unlimited	Limited	Limited (with a corporate trustee)

If you decide to set up a company, you may also need to:

Register an Australian Company Number
Register an Australian Business Number
Register for goods and services tax collection
Apply for a Company Tax File Number
Consider Pay-as-you-go registration

Talk to your accountant or lawyer for advice on the best business structure for your startup.

Also keep in mind, setting up your Australian Business Number may take longer if some of the directors are not Australian residents. This can be frustrating as they need to send in the proof of identity documents required. See the Australian Business Register website for more information.

Agreements

My next tip when starting a business is to put legal agreements in place. Why? Certain legal documents can help you protect and grow your business.

It is important to set up agreements when there are no emotions involved. They set out how you will manage expectations and disagreements with the people and organisations you work with. For example, a founders agreement sets out how you will work with your co-founder. It will help you set expectations and future proof your relationship.

I wrote an article, Which legal services do I need first for my startup, that can help you. In a nutshell these legal documents may include:

Shareholder agreement. This agreement outlines shareholder’s rights and responsibilities such as voting rights, share sales and transfers, dispute resolution and termination.
Founders agreement. A founders agreement outlines how founders will work together and can be cheaper than paying for individual employment agreements.
Confidentiality deed. You may need a confidentiality deed when sharing your business ideas with others. It can help protect your business ideas.
Worker’s agreements. These agreements include employee and subcontractor agreements.
Privacy policy, and terms and conditions. Your privacy policy, and terms and conditions outline how you will collect and use the information you collect, and the terms of your offering.
Stakeholder agreements. Stakeholder agreements can include agreements with clients, suppliers and any other agreements you have with your business partners.

Key Takeaways

The Christmas and New Year holidays are a good time to research your startup idea.

Before you launch you need to consider if you will continue working for your current employer or not so you need to check out any restraint clauses in your employment contract.

You also need to decide what the best structure will be for your business and what agreements you need to put in place when you launch.

And do not forget, if you have any questions, leave them below.

I wish you every success in your ventures.

Help me setup my business

Business Structures, Startup

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.

Help me with a director question

Startup

3 useful tips before starting your business in Australia

Updated: 9 December 2019

You can avoid the stress of knowing where to start with these 3 useful pre-launch tips before starting your business in Australia.

1. Business structure

In Australia, there are 4 main business types: (1) sole trader, (2) partnership, (3) trust and (4) company.

Each business structure has it’s pro’s and con’s.

Taxes, cost and ease of setup are usually big deciding factors.

While you can change your structure at a later stage, there can be lots of work involved, so it’s a good idea to pick the best structure for your business from the start.

Here’s a simple overview of each business type:

Sole trader - easy and cheap to set up, you are taxed at individual tax rates. However you are personally liable for the business.
Partnership - a group of up to 20 people that work together with a common view to make a profit. Partnerships are a common structure in many professional services businesses like accounting and law firms.
Trust - a trustee holds business assets for the benefit of others known as beneficiaries. You will need a trust deed to set out how the trust will function. Trusts are popular for tax planning purposes.
Company - a company is a separate legal entity that can sue and be sued. Company assets and liabilities are separate to your personal assets and liabilities so this is a big draw card to the company structure and it's sometimes referred to as 'limited liability'.

Feeling stuck deciding ?

A lawyer or accountant can also give you guidance about the best structure for your business situation.

2. Your business name

When you choose your business name, it’s important that you choose a name that’s available AND also does not place you at risk of being sued by another business.

Even if you see that your business name is available on the Australian Securities and Investment Commission (ASIC) register or that your chosen domain is available, the name you choose cannot be similar to a competitor's so that it confuses or misleads customer's.

Also, ASIC has some rules about the business name that you pick; it cannot:

be already registered; or
identical or nearly identical to a name already registered to another entity; or
include words or phrases that are restricted, offensive, could imply a connection to a government or similar organisation.

3. Timeframes and proof of identity

Time frames

You can set up your company set up in minutes if you have the right information at your fingertips.

However, setting up an ABN can take longer, in some cases up to 28 days (for example, if you have a director that is overseas and needs to supply proof of identity documents).

If you are setting up a partnership or trust - you should also factor the time it will take for a lawyer to draft your agreement or deed.

Proof of identity

If you are a non-resident applying for an ABN, you will need to provide 2 proof of identity documents, one from the primary documents list and the other from the secondary documents list.

Primary documents include foreign birth certificate, foreign passport, Australian birth certificate and Australian passport.
Secondary documents include national photo identification card, foreign government identification, marriage certificate (if provided to verify your change of name it will not be classified as a second document) and driver licence (the address on the licence must match the home address provided).

Here are the Australian Government's proof of identity requirements for non-residents.

Bringing it all together

As a re-cap, when setting up a business in Australia, keep in mind:

there are 4 main structures in Australia - sole trader, partnership, company and trust.
choose a structure that work’s for you in the long term and get advice from the outset if you need it.
keep in mind the time frames for setting up and getting proof of identity documents confirmed: obtaining a Australian Company Number can take minutes, setting up an Australian Business Number can take up to 28 days in some cases.

Got questions or comments about setting up in Australia? Be sure to leave them below.

I wish you success in your ventures!

Help me set up my business structure

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