The 7 Biggest Legal Myths Among Australian Entrepreneurs And Business Owners

William Shatner and James Spader show how it’s not done in Boston Legal. Photo: IMDB

Even experienced lawyers can be challenged by the intricacies of the legal system. But to an entrepreneur or small business owner just trying to get things done, navigating the law can be like taking on the Boxing Day sales blindfolded. This isn’t helped by certain myths that circulate, blurring the lines between fiction and reality.

The secret is to know your obligations and not get drowned in the details. Here are seven of the biggest misconceptions people have about our legal system.

1. I’m in business with my mate, so I don’t need a written agreement

This is one of the biggest mistakes people starting out make. No matter who you’re setting up with, get everything in writing. You’d be surprised what can go wrong even with the closest of friends.

The best way to avoid any disputes is to have a partnership or shareholders’ agreement; these documents clearly outline the structure, ownership matrix and expectations of the parties involved, ensuring that should anything go wrong down the track, there is little doubt as to how things will be dealt with.

Importantly, you need an exit strategy. Having the pragmatic conversation regarding an exit strategy with your partner isn’t the easiest topic to broach. It’s a bit like discussing a pre-nup. Of course we’d all like to think things will last forever but the simple fact is they don’t and a formal agreement before the fact, without emotions involved, will save you and your business a great deal of time and money in the long run.

To avoid costly legal battles when one partner decides to leave, ensure you have something in writing that clearly states how a departure will be dealt with and what will happen to the business upon this occurring.

2. Legal documents have to be written by lawyers

What few people know is that there is no legal requirement that any document be drafted by a lawyer. Anyone can draft their own agreements. The reason more people don’t is that it’s time consuming, and overwhelming knowing where to start.

What’s even less well-known is that when you approach a lawyer to draft an agreement, they use a template and just populate it with your details, and send you a big invoice.

If it’s good enough for the lawyers it can be good enough for you. If you don’t feel confident writing the documents yourself or if you simply don’t have the time, use a template. There are some great resources out there who remove the smoke and mirrors from the entire process and simply provide you with a comprehensive agreement you can tailor to your needs. You can always have a lawyer look over it, but you’ll save a fortune on legal fees. Just be sure to use a reputable provider.

3. A shareholder agreement is only for large corporations

Of the hundreds of thousands of businesses operating in Australia, less than 5% operating as companies have shareholder agreement. That’s risky.

When people hear shareholder agreement, they think large multinational. That’s not the case. Unless you’re a sole trader or in a partnership, having one, although not legally required, is incredibly important.

The most practical reason is that it provides a mechanism for resolving issues and disputes that arise in the day-to-day operations of the business. This means the issues are anticipated before they occur and the measures to be taken to fix them are clearly set out.

4. The only way to protect my business is to rack up a huge legal bill

As a business owner you have certain legal responsibilities, but compliance doesn’t have to equal a hole in your wallet. There are ways you can drastically minimise your legal costs.

Pick a lawyer friend’s brain
Most people have a lawyer mate. Get them to review your key documents. You don’t have to fork out for something as simple as looking over an agreement. The number of times friends have asked me for legal help could fill a book.

Use a template
Now that I’ve let you in on the lawyers little secret, I’ll probably have them burning a path to my door. So don’t let it be in vain! Use those templates, customise them to suit your needs and save big time on fees. At the very least, if you do have to see a lawyer, starting with a template and having a draft agreement will reduce the time you spend with them which means lower fees.

Negotiate a package deal
As a start-up, you will require a variety of legal documents to get yourself on your way. These will include a partnership or shareholders agreement, website terms and conditions, disclaimers and website privacy policy.

If you don’t use templates, approach a start-up lawyer and negotiate a package deal. If you’re bringing them a substantial chunk of work, they’re more likely to offer some form of a discount. Remember, you’ve lost nothing by asking!

5. I paid for it so it’s mine

Unless you’re a tech genius or you have an awesome mate, you’re going to need to have your website designed and built by a developer. It is essential you have a web development contract governing the transaction. Before you sign anything, make sure you read and understand the agreement and if you’re not given one, either ask for it or provide them with your own.

The most important provisions to you will relate to copyright. You need to ensure you have complete control over the website allowing you the freedom and flexibility to run the business as you see fit. Watch for dodgy developers who attempt to retain control, even after having been paid in full.

You should also obtain a warranty (guarantee) from the developer that their work for you does not infringe on anyone else’s copyright. A provision indemnifying you against any such breach protects you further.

A picture says more than a thousand words right? Graphics are key on any website, but make sure before you put anything up that it either belongs to you personally or you have permission to use it.

6. Registering my business name is enough to protect my brand

Don’t be fooled into believing that registering your business name with ASIC is enough. Having a trademark is the only way to prevent another business infringing on your brand.

Using a business name does grant you a ‘common law’ right to that name but enforcing it is a different matter. To do so, you would need to sue the other party in court and success rests on proving you have built a reputation on the name and suffered actual damage as a result of the other persons misuse.

Registering a trademark is done through the government body, IP Australia, and will cost you around $350. The good news is you can do it yourself online and the initial outlay is well worth it in the long run.

7. I’m not responsible for user comments on my company Facebook page

Social media has the benefit of providing your business with unprecedented access to the consumer around the clock, but it also means you’re subject to trial by social media on a daily basis.

Any representation about your goods or services must be true and accurate. This includes user generated content. Once you become aware that something misleading or deceptive has been posted you can be held liable. It of course depends on context, but the safest approach is to remove any comments or correct the misrepresentations (even the positive ones).

Kate Horman

Kate Horman is the founder of The Lazy Lawyer, a website dedicated to demystifying the Australian legal system by providing access to comprehensive legal documents and templates, without the hefty price tag. The goal: to deliver open and affordable access to justice instantly online.

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