Five things you need to know about business compliance

Minimising legal issues that may present themselves as your company grows not only in profit but in numbers is undoubtedly an imperative of a successful business.

While it is easy to avoid thinking about and addressing legal issues, confronting these issues head on is essential to the maintenance and success of your business in both the short and long term. This guide aims to clarify whether your business complies with legal requirements across key areas to save you from unnecessary legal complications.

In a recent report conducted by LawPath, analysing statistics taken from our legal health check service, issues stemming from three primary areas became evident for SMBs: online compliance, employment and business structures.

Online legal considerations

If your business operates online, there is no doubt that compliance with online obligations is essential to the legal health of your business. Getting your website’s terms and conditions (T&Cs) in order are a crucial first step, and are an absolute necessity for anyone conducting business online.

Why are terms and conditions so important?

When supplying goods or services to customers, the first thing to focus on is getting the T&Cs of your website correct and tailored to your business. Having effective terms and conditions is important for three main reasons:

• Setting out your terms and conditions with clarity enables customers to understand the services in which you sell and the method that you use to provide the service.
• Online tech companies provide their T&Cs through a ‘click and accept policy’. This allows customers to understand that there are T&Cs prior to making a purchase.
• A well-drafted set of terms and conditions enables your business to avoid liability to the fullest legal extent permitted by the Australian Consumer Law.

Although the clauses included in website terms and conditions will vary between businesses, every set should include: terms of payment; dispute resolution mechanisms; terms of delivery; and refund and return policies.

When and why to include a privacy policy?

A privacy policy is an essential element to make sure that your website is secure and trustworthy. It deals with the collection, management and storage of personal information. A privacy policy should be used where your business acquires any sort of personal data, for example, email addresses. For some business it is a legal obligation under the Privacy Act 1988 (Cth). A clear and up-to-date privacy policy that explains how your website manages personal information will enable you to build customer trust and improve online business performance. An effective privacy policy depends on identifying your audience and keeping your policy plain and simple. It's also important to your privacy policy to the specifics of your business — this will help guide customers and hopefully result in an increase in transactions for your business.

Employment

Employment agreement

A well-drafted employment agreement could help safeguard against unforeseeable events, which is key to the longevity of your business. The agreement should clearly set out the expectations of employees and help avoid issues arising from disputes further down the track. These reasons illustrate the necessity of having a written employment agreement tailored to your business. Having a simple or complex employment agreement largely depends on the nature and size of your business, although we always recommend getting this tailored to your business by an experienced employment lawyer.

Workplace policies

Having effective workplace policies is an additional and essential way for your business to safeguard against future liabilities arising from unforeseeable events. It is strongly recommended to include employment policies that help you deal with and resolve workplace issues. Although there are several available to employers, the key ones to ensure you have in order are: discrimination policy; workplace harassment and bullying policy; drugs and alcohol policy; and acceptable IT use policy.

Contractor agreements

If your online business decides to use contractors rather than employees it is imperative to know how these differ from one another.

There are some benefits of hiring contractors over hiring employees, such as:

• Reduction of costs: Contractors do not have the same benefits that employees have, such as superannuation, paid holiday leave and sick leave.
• Lower risk of legal action: Contractors are not protected by the workplace relation laws that protect ordinary employees. This effectively limits the avenues in which contractors can seek legal action, which is important when considering business liability.

One issue of operating an online business, especially in the tech field, is that copyright in material created by contractors remains with the contractor rather than with your company. This makes it highly important to draft a contract where intellectual property rights are assigned to your business. In order to avoid this ‘legal trap’ and protect all your valuable information and hard work, an assignment in writing of the copyrighted work from the contractor to your company is essential.

Compliance with business structures

Whether your business is structured as a sole trader, a company or a partnership, it is essential to comply with your structure in order to ensure that your personal income tax is kept at a minimum and to avoid any unwanted issues which may emerge.

Sole trader

A sole trader operates where one person is individually responsible for all aspects of business operations. While there are few complexities and tax formalities in operating as a sole trader, one of the disadvantages of operating as a sole trader is that a sole trader is personally responsible for any debts or liabilities. In regards to superannuation, sole traders are not legally required to contribute to their own fund, although sole traders can claim tax deductions from self-contributions.

Partnerships

A partnership exists where two or more people carry on a business with the view to profit. The basic tax arrangement for partnerships is that each partner will pay tax only on the profits which they receive, rather than the entirety of a partnership’s profit being taxed on the whole.

Compliance with the legal structures of a partnership largely depends on understanding that if your business operates as a partnership each partner is jointly and severally liable for all the debts of the partnership. One issue stemming from this arrangement is that partners can be liable for liabilities that arise without their knowledge or authority. Understanding joint liability is vital for complying with a partnership as a business model.

Company

Although more expensive to set up and manage, a company is treated as a separate legal entity, affording the shareholders (owners) more legal protection and limited liability. A company is undoubtedly a more complex arrangement than both a sole trader and partnership; however, personal tax can be mitigated where that money subsists within the company. This, in conjunction with the small business incentives put forward in the 2015 federal Budget, including deductions being made available on individual assets purchased for less than $20,000, is a clear benefit of incorporating.

Compliance with the business structure of a company largely turns on the compliance of legal obligations under the Corporations Act. These include issues relating to administration as well as the roles and obligations of both directors and shareholders.

An additional obligation for most companies is the requirement to abide by the pay as you go (PAYG) requirements.

Conclusion

Compliance with the various mechanisms which your business depends on will undoubtedly help your business avoid the all too common mistake of simply ignoring legal formalities. Avoiding the common mistakes of the majority of SMBs will put your tech business ahead of the pack and ensure longevity of profit.

While this may seem daunting for a new business, it is key to establish compliance across all areas of your business to ensure you’re reducing risks from day one. The last thing any business owner wants to endure is a legal dispute.

Image credit: ©iStockphoto.com/Robert Churchill