All successful startups grow from a great idea.

Whatever your great idea - whether it’s a new product, solution, technology or means of

communicating – you are probably reading this Startup Pack because you have started the

journey to turn your great idea into a successful business.

You need a great team to work with you on that journey: it is vital you surround yourself with

experienced people you can trust, who look out for your interests, and have the skills and

dedication to help you achieve your goal.

The team should include trusted professional advisors, including an experienced lawyer* who

is a specialist in your chosen industry, who understands your business and, crucially, is

pragmatic and commercial – and, of course, is willing to work for fixed fees with no nasty

surprises!

We have put together this Startup Pack to introduce you to us at Blueprint Law and to explain

some of the legal issues that face most startups. Although your focus will naturally be on

developing your actual product or service, there are legal issues that should not be put to the

bottom of the pile or left until you think you’ll have more time (you probably won’t…).

Having a plan of action and identifying issues demonstrates good strategy and management,

and is designed to prevent problems or panic down the track – for example, in not securing or

protecting necessary IP rights for your business, not having appropriate terms of trade for your

business, or not having the legal right to process data on which your business model depends.

This is not an exhaustive guide to every legal issue that may be relevant to you; however, from

our extensive experience, we know these are the typical issues that face most startups. And, of

course, the contents of this Pack should not be taken as legal advice – if you want that, just ask!

We have also included in this Startup Pack a Discount Voucher that entitles you to a

complimentary introductory meeting with one of our directors, Gary Rogers or Nick Hart, to

discuss your startup business and explore whether we can support you on your journey from a

great idea to a successful business. The Voucher also provides a 30% discount on our (already

extremely competitive) fixed fees for commercial work undertaken between now and 30 June

2016 (subject to a few conditions, of course) – see the back page of this Pack for details of this

exciting offer.

We hope you enjoy the read!

*that’s us!

Before we look at some issues in a bit more detail, we thought we’d let you

in on a few tips that will help give you the best chance of succeeding in

your venture (and even reduce the need for you to spend money on

lawyers!). So, here we go:

Legal issues with your business concept: if you are planning to

launch a new business, have a chat early on with a lawyer with

relevant experience to make sure you identify any particular legal

issues that may impact on your ability to operate the proposed

business or which might require you to structure the business in a

particular way. It could be a costly mistake to wait too long before

getting this advice.

Working with partners: if you are setting up a new venture with

one or more business partners, apart from making sure you

establish an appropriate corporate structure (see the “Structuring

Your Startup” section below), you should agree a business plan with

your partners – the purpose of this is to make sure that you and

your partners are in general agreement from the outset as to the

important issues that will affect your business, such as the budget

for establishing and operating the business, how the business will

be funded, the scope of its activities, the commitment to be made

by each of the partners, and when the partners will be seeking to

exit from the business.

Keep written records: in all your conversations and meetings with

other people relating to your business, including potential or actual

suppliers, investors, service providers, and even business partners,

keep a clear written record of the discussions. And consider

following up with an email to confirm what was discussed and what

is expected of each person involved in the discussion.

Confidentiality: if you are talking to other people about your new

business, or sharing information, make sure you consider getting

signatures on a confidentiality agreement (a.k.a. a non-disclosure

agreement or NDA). At the very least, if you want a conversation to

be confidential, make this clear to the other person before

revealing anything confidential, make a note of the fact that you

agreed this would be confidential, and then follow up with an email

confirming that the conversation was confidential.

To be (bound) or not to be (bound)? when dealing with potential

suppliers and other prospective business partners, you need to be

clear about whether you intend to form a binding legal agreement

with that person or company. You don’t need a written agreement

signed by both parties to have a binding legal agreement; an oral

agreement, or even an exchange of emails, can be binding. If you

are negotiating with someone, or are even in the early stages of

discussions with them about a potential deal, use the words

“Subject to Contract” in your correspondence – even better, put

this in the subject line of relevant emails – this should avoid there

being a binding legal agreement until both parties have agreed to

be bound. But you should really involve a lawyer at this stage to

help you formulate the terms of the deal and document it

properly*.

Misleading and deceptive conduct: you need to be really clear in

your business dealings with suppliers, customers and others, to

minimise the risk of being on the receiving end of a claim for

misleading or deceptive conduct. Don’t promise or even imply that

you can deliver something, or provide a benefit, unless you are

absolutely sure that you can do it. And make sure that you

document everything clearly, so that you don’t get embroiled in a

dispute revolving around conversations where it will be difficult to

prove or disprove something.

* we know someone who can help you with this, by the way…

One of the first things you need to think about when setting off on your

journey to turn your business idea into reality is to figure out how to

structure your business. This will depend on a number of factors, and you

will need to take legal and tax advice, but there are a few issues you can

think about before seeing a professional for advice:

Going solo

If you are the sole “owner” of the business, then in theory you don’t need

to set up an elaborate corporate structure, or even a simple company,

but in due course we would recommend that you at least look to

establish a company through which to conduct the business. This has a

number of benefits, including limited liability (generally, a company gets

sued when things go wrong, not its directors, shareholders or

employees), you can keep your personal assets separate (and relatively

safe) from claims against the company, and you can use a company to

offer shares to investors and employees.

Sharing equity

If you are setting up a business with co-founders, or you want to offer

equity to investors or employees, you will need a company (you can also

set up a trust structure, but that may be too much detail for now). And if

you set up a company with multiple shareholders, we highly recommend

that you have an experienced lawyer, who really understands your

business, to prepare a Shareholders’ Agreement – this is a contract

between the shareholders which governs how the company will be run

and sets out the commercial issues relevant to the management of the

business. The Shareholders’ Agreement will deal with issues such as:

agreeing how decisions are to be made between the shareholders

– does anyone have a right of veto in respect of certain

decisions?

what happens if the company needs more money – are the

shareholders obliged to put in more funds?

when is a shareholder allowed to sell some or all of their shares –

for example, do you want an embargo on share sales for a long

enough period to provide some stability for the business?

have you agreed when you will seek to exit from the business –

for example, to sell the company or seek a stock exchange listing?

What if I start working with my co-founder without setting up a company?

If the t wo of you agree to work on the project together, and have a common

purpose in operating the business, it is likely that you will have created a legal

partnership, even if this is not put in writing. This might not be a good thing!

As partners, you will both jointly own the assets of the business, and be jointly

and severally liable for the liabilities of the partnership (meaning that just one of

you could be sued for a claim against the business, exposing that person’s

private assets, even if the other partners were the cause of the claim).

There are complications if one of you wants to leave the business or if you want

to take on new partners. A partnership is not the way to structure a business if

you are looking to raise money from investors as they will generally expect to

invest in a company structure so that they have a tangible equity interest (i.e.

shares) rather than a percentage in a partnership which could expose them to

liability (which they wouldn’t have as a shareholder in a company). So, you have

probably got the message… don’t operate as a partnership unless you know

exactly what you are getting into.

Do I need to worry about how I raise money?

Well, perhaps it’s obvious, but there are a few things you need to consider

before you start trying to raise money from investors:

there are restrictions on advertising for investors – generally, it is illegal,

unless strict requirements under the Corporations Act are followed

the Corporations Act places restrictions on how companies can raise

money from investors – the starting point is that you may need to issue a

formal offer document to raise money, but there is a useful exception for

smaller companies, which can raise up to $2m per year from up to 20

investors without having to follow the disclosure requirements under the

Corporations Act (however, we always recommend that any fundraising

is carried out on the basis that the disclosure requirements have to be

followed, to reduce the risk of claims from investors)

having said all of that, make sure you take professional advice to make

sure you are going about the fund-raising properly (that is, to protect

your interests and to comply with all legal requirements)

What about making a pitch to investors?

When you make a pitch to investors, you need to think about:

the confidentiality of the information you are presenting – consider asking

the attendees to sign a confidentiality agreement (see the “Getting

Started” section above) or check with whoever is organising the pitch

session to see if they have organised for attendees to agree that the

presentation is confidential (ideally, by signing an NDA)

if there is or may be something patentable in your business, but you

haven’t applied for a patent, don’t disclose the nature of the invention

that is patentable, otherwise you may lose the ability to apply for a patent

(unless the disclosure is clearly confidential, but that could be difficult in a

room full of people)

make sure you present accurate information, especially relating to

forecasts of turnover, profits, etc. – otherwise, apart from potential

investors not being impressed, you may expose yourself to a claim for

misleading or deceptive conduct if someone uses that information to

make a decision to invest and the information proves not to be true or was

subject to factors that were not disclosed

Being prepared for investors

If you will at some stage be looking for investors, or even if you want to sell the

business, it is really important that you are well prepared – typically, in these

situations, you will have lawyers crawling all over your business records trying to

find reasons for their clients not to proceed with the purchase or at least to beat

you down on price. So, the message is – be prepared! Make sure that, from the

outset of establishing your business, you keep good, accessible records relating to

your business, including:

keep your Company Register up-to-date and make sure you lodge all ASIC

filings on time

make sure you hold proper board and shareholder meetings and that

minutes are taken and kept on the Company Register

ensure that all contracts entered into by the business are catalogued and

easily available

make sure you can show how all intellectual property rights used by the

business are owned by, or licensed to, the business

keep a note of all relevant dates for the business – e.g. expiry of lease

terms, licence periods, etc.

The more you do to get all of this right up-front, the less of a headache it will be

later on (and it is always more expensive to fix problems than to sort them out in

the first place).

Where do I start with IP?

It is vital from the start that you identify the intellectual property on which your

business is based, and the intellectual property rights necessary to bring your venture

to market and which you can use to protect your commercial interests. These IP rights

can include:

Registered Trade Marks to protect and differentiate your brand, products and

services

Copyright in various works and materials – e.g. software, brochures, logos,

drawings and in the design and content of your website

Patents including in technology, processes and products

What do I need to do?

As IP laws provide exclusive rights to creators or owners of IP, you will need to ensure

that your use of IP does not infringe anyone else’s rights. You also need to protect your

own IP. By owning or controlling the IP rights relating to your business you will have the

legal tools to prevent others from infringing your rights and to maximise your ability to

commercialise your IP. It is therefore essential that you:

identify what IP you use and what IP you create – make sure you keep good

records

establish what rights you have in your IP – make sure you actually own it

ensure your IP is protected – e.g. register any available trade marks or patents

Can I deal with IP later?

Remember, every startup is both a user and a creator of IP. We recommend that you

ask the questions above as early on as possible. If left too late, you might encounter

issues like the ones set out below, which can be costly and difficult to resolve:

I have received a letter of demand because my new name/logo is apparently

infringing someone else’s trade mark – minimise the risk of this by clearing the

name/logo in advance

I didn’t realise I don’t own the copyright in my logo even though I paid for it -

you need a written assignment of copyright from the designer

My business model relies on using other people’s IP and I don’t have a licence

to use it – work out what licences or other rights you need up-front, and get this

documented

I am being asked to warrant that I own the IP in my product/service –

you need to make sure you can give the required warranties, otherwise

you are at risk of legal claims

I waited too long to file a patent and now someone else has got in first

– take advice from a specialist patent attorney to reduce this risk (and

don’t disclose anything about your patentable concept without an NDA

in place, otherwise you might lose the right to apply for a patent)

I launched my business overseas but found someone else using my

brand name – you can protect your brand internationally if you work

out an effective strategy up-front

I didn’t contact [insert name of IP specialists*] and discuss my IP

strategy when I had the chance

Documenting your idea – why it is important to write things down but keep

your ideas close

Ideas themselves are not protected by copyright - for the purposes of

protecting your IP, documenting your ideas is a must. For example, copyright

can only subsist in a work once the idea or concept is put into a physical (or

electronic) form. Putting things down on paper, and being able to prove how

and when you came up with the concept, can also help to fend off

infringement claims!

It’s a good idea to not only document your ideas but to also keep them on a

need-to-know basis until you launch your business. Patents and registered

designs, in particular, usually have eligibility criteria that require them to be

‘new’ – i.e. that your design or invention has never been disclosed or revealed

in public. This means that you cannot disclose or show your design or

invention in public before seeking registration. The ‘public’ does not need to

be a significant number of people either – even one person could be too

many! Though it may be tempting, you should always avoid promoting or

talking about your design or invention before you obtain registration, unless

you have a suitable confidentiality agreement in place – to learn more about

confidentiality agreements, see the “Getting Started” section above.

*that’s still us!

No ‘i’ in team – collaborative creation and ownership

Collaborative environments are great for developing ideas but they can

also lead to difficult questions around IP ownership and the

contributions made by individual team members. For example, if you

work in a team you may have to establish what contributions are made

by each team member, the value of those contributions, and whether

the team members are employees or contractors (this makes a

difference as to who owns the IP - contractors will own the IP rights they

create unless they assign the IP to you in writing). Setting up internal

arrangements such as these to identify and track your IP can be crucial

to protecting your business.

Exporting your IP

Registering an IP right in Australia does not automatically give you

international protection – if you are looking to break into overseas

markets, you will need to develop an IP strategy that suits the needs and

resources of your business. For example, if you want to seek trade mark

protection for your brand in other countries, you can file a trade mark

application first in Australia and then have six months in which to pursue

applications in other countries (with the advantage of these foreign

applications being treated as having been made at the same time as the

original Australian application).

What’s the difference between an employee and a contractor?

Taking on employees means that you have a lot more responsibility as their employer – for

example, you have to pay PAYG to the ATO, you have to pay superannuation, and the employees

are entitled to employment benefits such as sick leave. Contractors, however, have to take care of

their own tax and super (but not always – see below).

So it’s better for me to just take on employees?

Perhaps - but when you take on some contractors, the law may in fact treat them as employees,

so you need to check up-front whether you can really treat them as contractors (there are various

tests to work out whether they are likely to be treated as employees or contractors). So even if a

service provider says they are happy to be a contractor and to get paid by submitting invoices, the

ATO may take a different view (and the service provider may later change its mind and then seek

employee benefits from you!).

Surely I don’t have to pay super to contractors?

Unfortunately, a lot of businesses don’t realise this but you may have to pay superannuation to

contractors, even though they may not receive any other employee-type entitlements. There are a

few tests to assess whether you have to pay super to a contractor, so make sure you figure this

out up-front.

Can I take on interns and not pay them?

Many startups have relied on “free labour” provided by interns, justified on the basis that the

interns gain real experience which will be of value to them in finding paid employment in future.

The position on this has, however, changed recently so you are now legally obliged to pay

“interns” unless they are participating in a formal vocational placement (i.e. as part of a

recognised course from an authorised educational or training institution), or you can otherwise

demonstrate that there is no employment relationship between your business and the intern. If

neither of these circumstances apply to your interns, they will be treated as your employees and

entitled to be paid for their work (at the relevant minimum or award rate) as well as receive other

entitlements under the Fair Work Act.

There is no absolute definition or checklist to work out whether an employment relationship exists

– however, if you can answer “yes” to the following questions, it is likely that there is an

employment relationship in place:

is the intern engaged to carry out (and have they in fact carried out) productive work for

the business (as opposed to merely observing or performing tasks for the sole purpose of

learning, gaining experience or being trained)?

is the work being carried out by the intern integral to the operation or progress of the

business?

Ultimately, a genuine unpaid work arrangement is one which is essentially for the benefit of the intern – if

your business is gaining a significant benefit from the intern’s work, the arrangement is more likely to be

construed as an employment relationship, and you will be required to pay them.

Please note that even if you do not need to provide entitlements to interns under the Fair Work Act, you

are likely to have other obligations in relation to the interns under other laws (e.g. work health and safety

laws and anti-discrimination laws).

If I pay a contractor for their services, I own all of the rights in what they create for me, don’t I?

Unless you have a written agreement in place with your contractor (or freelancer) which provides that you

will own all of the IP rights in the product of their services, your contractor will retain ownership of the IP

rights in the works created for you. This restricts what you can do with the works, including preventing you

from selling, assigning or licensing the IP rights in those works to anyone else. So you need to make sure

you have a suitable contract in place with your contractors.

And what about employees – do I own everything they create?

With your employees, the situation is simpler. Everything they create “in the course of their employment”

will be owned by you – however, this is not as straightforward as it may seem and requires an assessment

of the scope of the employee’s duties and instructions from the employer, the circumstances surrounding

the creation of the works, and any terms agreed in the employment contract.

For example, if an employee’s role is to write software code for a particular App, but they come up with an

idea for a new App that has nothing to do with your business, they are likely to own that concept and any

code they write for it (unless, for example, you have provided for this in their employment contract). To this

end, the employment contract should accurately describe the scope of their employment duties, and an

appropriate IP clause should be included in employment contracts where employees are likely to create

important IP rights.

What are Trading Terms?

When you sign up a new customer to your App or business, you are

essentially creating a contract with that customer, even if it is not written

on paper and isn’t physically signed by anyone. Generally, for online

businesses or Apps, you will have “Trading Terms” (or “Terms &

Conditions” or “Ts & Cs”) that form this contract with your customers.

They are an essential part of any business because they represent the

terms and conditions on which you agree to provide goods or services to

your customers. Trading terms are especially important for online startup

businesses as they can cover everything from payment terms to liability to

ownership of user-created content, and much more.

Can I just copy someone else’s trading terms?

Well, you can, but this might get you in trouble! Apart from a potential

claim of copyright infringement against you, another trader’s terms might

not be suitable for your business. Although in reality hardly anyone reads

online trading terms in detail, you need to be sure that your terms are

appropriate for your business if you need to rely on them to take action

against a customer or to protect you from a customer’s claim. Effective

and suitable trading terms are not something you can adequately prepare

yourself unless you are an experienced lawyer.

How do I make my Trading Terms binding?

If you want to rely on your trading terms (e.g. if a customer owes you

money and you want to cease providing the relevant goods or services),

you need to make sure they are legally binding - the best way to do this is

to make sure the customer has agreed to them before they enter into a

transaction with you. Typically, the easiest way is to make sure that the

trading terms are easily available to view by the customer and the

customer is required to tick a box to confirm their acceptance of the terms

at the time of, for example, registering with your service.

Updating your Trading Terms?

You need to make sure your trading terms are kept up-to-date as your

business develops, both to reflect accurately how your business operates and

to keep up with any changes to the law. And you need to make sure you have

arrangements in place to be able to update your trading terms and ensure

your customers have accepted the new terms.

What if a customer complains about my service?

It depends on the type of complaint, but, for a start, you need to make sure

you provide the service in accordance with your own trading terms, otherwise

you could be liable for a breach of contract. You also need to make sure you

haven’t made promises about the service which are “misleading or deceptive”

– note that your trading terms can’t exclude these types of claims. The best

way to minimise the risk of these types of claims is to make sure that the

customer gets “what it says on the bottle”. For example, don’t promise them

that you are providing a free service but then catch them out with hidden

charges.

What if a customer wants a refund?

Although this may be covered by your trading terms, Australian consumer laws

provide fairly extensive protection to “consumers” (which can also include

some businesses). As a result, you may not be able to avoid providing a refund,

but there are things you can do to minimise your potential exposure – it

depends on your particular circumstances, so take advice as early as possible.

What if I am targeting customers overseas?

Well, this is when it gets even more complicated! Your terms and conditions

will need to be prepared carefully to minimise the risk of your trading terms

not complying with local laws where your customers are located. But this is

one of the most difficult aspects of trading online – you cannot be totally

protected from a customer outside Australia seeking to sue you in their own

jurisdiction, but there are ways to minimise the risks.

Some Blueprint Law testimonials…

Is privacy relevant to my startup?

Privacy is relevant and important for every business, whether you have

a strict legal requirement to comply with the Australian privacy laws,

or at least want to demonstrate that yours is a responsible business by

being open and transparent in how personal information is handled,

used and managed.

When do the privacy laws apply?

In general, the Australian Privacy Principles in the Privacy Act apply to

businesses (including any not-for-profit organisation) with a turnover

of more than $3 million, to private sector health providers, or for

businesses that sell or purchase “personal information”. However, it is

good business practice to follow the requirements of the Privacy Act

even if your business falls outside of its ambit.

What kind of information is protected under privacy laws?

Any personal information is protected, which means information (or

an opinion) about (a) an identified person or (b) a person who could

reasonably be identified. This potentially covers a broad range of

information – such as names, addresses, dates of birth and phone

numbers.

What do I need to do to protect a customer’s privacy?

Relevant businesses (as described above) need to comply with the

Australian Privacy Principles (APPs). In essence the APPs:

require relevant businesses to have an up-to-date and clearly

stated privacy policy readily accessible to customers

govern when personal information can be collected, how it is

dealt with and how it can be used, in particular with respect to

direct marketing

require that reasonable steps are taken to protect personal

information

Blueprint Law practice areas…

Whether or not you are required to follow the APPs, you should consider:

have you got a privacy policy in place, is it up to date, clear and

accurate - and are you actually following it?

what customer data / personal information are you collecting or

using? Do you need to collect all of it?

are you compliant with the Spam Act (which controls how you are

able to send marketing messages to potential customers)?

how is customer data being managed and where is it stored? - for

example, if you are using a cloud service to process or store data

that includes personal information (about your customers) you will

need to be aware of where and how that data is stored

What happens if I don’t comply with the privacy laws?

If you are required to follow the APPs and a complaint is made which is not

resolved, the person complaining can make a complaint to the Office of the

Australian Information Commissioner (OAIC). If the OAIC finds the

complaint has substance it can order compensation for financial or non-

financial loss, however, it will try and work out a mutually acceptable

resolution which may not require compensation. For serious breaches of

privacy law, the Courts can impose fines.

Perhaps more importantly, a dissatisfied customer can negatively affect

your reputation by complaining over social media about any non-

compliance by your business.

Introductory Meeting

If you need legal advice in relation to your new venture, we are happy

to meet with you for an hour at no charge to make sure we are the right

fit for you. We prefer to meet face-to-face, but we are happy to do this

by telephone or Skype if that is more convenient. If you are happy to

engage us after that, we will send you our Client Service Agreement

which will set out the terms and conditions on which we will provide

our services to you.

Our Service Promise

We promise you:

high quality legal advice - given with a commercial and

pragmatic approach

a personal service – we will take the time (at our expense) to get

to know your business

fixed fees for most work – there will be no surprises

overall, we will provide you with a first class service!

Discount Voucher for New Start-Up Clients

And we are currently offering new start-up clients a discount voucher,

which you can use as follows:

available only to new start-up clients who enter into a Client

Service Agreement with Blueprint Law by 30 June 2016

you will receive a 30% discount in respect of all services

provided by Blueprint Law prior to 30 September 2016

the discount will be applied to our fees on all invoices paid

within seven days of issue (and excludes disbursements or

agents’ fees, such as for foreign trade mark agents)

To claim the discount, just mention this Startup Pack when you first

make contact with us.

So, whether you are a maverick, disruptor or entrepreneur (or all 3!),

we look forward to working with you.

C O N T A C T U S:

© Blueprint Law Pty Ltd 2015

Nick Hart, Director

nhart@blueprintlaw.com.au

Gary Rogers, Director

grogers@blueprintlaw.com.au

Blueprint Law

Level 3, 2 Martin Place,

Sydney NSW 2000

+61 2 9300 3100

www.blueprintlaw.com.au