The law of startup success
In a piece that first
appeared in Encore, solicitor Alison Eveleigh says the first thing successful start ups require is a solid legal foundation.
We may be lawyers, but we understand that reviewing legal documents can be painful, and is often the last concern of budding entrepreneurs who just want to get their product to market.
But in addition to passion, drive, talent and a great idea, any successful start up must be built on a solid legal foundation. The good news is that you don’t need to have everything in place from the beginning. As your business evolves, so too will your business practices and required contractual arrangements. But there are some things you should consider right from the start.
Structuring
First up, you need to choose a business structure. The most common are:
Sole Trader. This is the simplest business structure. The owner of the business runs the business in their own name, and retains full control and ownership, including profits and capital.
Partnership. These involve between two to 20 people managing and operating a business together. All owners jointly own the assets and are equally and personally liable for any debt. If you decide to form a partnership, you may need a Partnership Agreement.
Company. A company is an entity incorporated under the Corporations Act 2001 which can hold its own assets and conduct business in its own right. If you chose to incorporate a company, you will likely need a Shareholders’ Agreement. You can also consider implementing an Option Agreement, which deals with sale of shares to one or more of the shareholders at a later date and is often part of a shareholder exit strategy.
Partnerships and companies may also be held in trust structures. If you are thinking of implementing such a structure, you should seek tax advice.
Business relationships
Managing relationships can be a tricky business. For a start-up, it’s easiest to think of your business relationships in terms of internal and external relationships.
Internal relationships. There are a wide variety of employee-related contracts to consider, depending on the nature of your start-up. If you have full-time employees, it is best that they are employed under a contract of employment or executive services agreement. An employer typically retains any intellectual property rights in work created by employees, but you should ensure that your employment agreements clearly deal with this issue and the related issue of moral rights.
Independent contractors and freelancers typically retain intellectual property rights. These employees will require separate contracts which address intellectual property rights and moral rights in addition to other key employment terms.
External relationships. Once again, depending of the nature of your business, there are a number of agreements to consider.
The most common agreements are:
• Supplier services agreements, which set out the terms that govern the relationship between a client and a supplier;
• Intellectual property/asset protection agreements;
• Intellectual property/asset exploitation agreements;
• Commercial contracts, which will vary depending on the functionality required;
• Commercial leases, if you are renting office space; and
• Confidentiality agreements or deeds.
Protecting your intellectual property
Your intellectual property may be your most valuable asset, so you should invest some time in working out the best way to protect it. Generally, the main areas to consider are:
Trade marks. A trade mark is a ‘badge of origin’ used to distinguish the goods and services of one trader from those of another. You should consider registering one or more trade marks to protect your core brand, whether this is a name, logo and/or tagline. Even if you don’t register a trade mark, you can still use the symbol ‘TM’ for a non-registered trade mark to indicate that you are using the sign as a trade mark and dissuade competitors from copying your brand.
Copyright. Copyright protects from unauthorised reproduction or adaptation of original creations such as books, computer programs, scripts, paintings, sculptures, drawings, photographs, music, film, video and broadcasts. Copyright is automatic, and is not a registrable right. However, you may wish to consider adding a copyright statement to your material as a reminder to others that your work is protected by copyright.
Patents. A patent is a right that is granted for any device, substance, method or process that is new, inventive, and useful. While you can apply for patent protection, this can be a long, expensive and complex process. Consider seeking preliminary advice from a patent attorney before starting this process.
Designs. A design refers to the features of shape, configuration, pattern or ornamentation which gives a product a unique appearance, and must be new and distinctive. Registering for design protection is likely to only be relevant if your business manufactures products which involve unique shapes or configurations.
All successful start ups require passion, a great idea, a quality product and a point of difference. Getting the legal foundation right from the start will help you achieve your commercial goals.
Legal Eye is a monthly Encore column from Von Muenster Solicitors and Attorneys who specialise in the media, marketing and entertainment industries.
This piece first appeared in Encore. Download it now on iPad, iPhone and Android tablet devices.
Thanks for the information, Alison.
For a sole trader on a tight budget, would you recommend they trade mark their logo? If so, what kind of cost would one expect to pay?
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