Business law or Commercial law concerns a range of transactions affecting a business enterprise. A business should be supported by appropriate legal, financial and accounting advice to ensure sustainability and growth, to minimise commercial disputes and to protect proprietors, owners and directors from personal liability.
When commencing a new venture or buying a business, it is important to operate through the most effective structure. Determining the most appropriate business structure requires consideration of the parties’ personal and financial circumstances, the size and nature of the business, the regulatory environment within which the business operates, and the owners’ desire and strategies for future growth.
Common business structures include sole proprietorships, partnerships, trusts and incorporated companies. Each have their own pros and cons and vary in their complexity, reporting requirements, treatment of income tax and level of asset and personal protection for the owners.
Companies and directors’ liability
A company is an incorporated legal entity with the capacity to enter legally binding transactions in its own right. Companies are a popular choice for operating small to medium-sized businesses, apart from some exceptions, officers and directors are not personally liable for the company’s debts.
When formed, one or more directors are appointed as authorised officers to conduct the company’s affairs. Directors hold a position of power and trust imposing on them several duties to act in the company’s best interests. Essentially, directors must:
- act honestly and use their powers to make decisions based on what is right for the company as a whole;
- avoid conflicts of interest and not use their position for personal profit to the detriment of the company;
- not use their position or information acquired in their role to gain an unfair advantage or benefit themselves or others;
- exercise care, skill and diligence in performing their duties;
- prevent insolvent trading.
Company directors face many situations and challenges that may place them in danger of breaching their fiduciary and statutory duties. In the case of uncertainty, directors should seek timely advice to clarify their position.
Certain defences may be available to a director who has breached a duty to avoid insolvent trading and it is critical that directors of companies facing financial difficulties seek professional assistance early.
Businesses enter into numerous commercial transactions during their lifetime. These arrangements should be governed by a written contract which captures the parties’ negotiations, sets out their rights and responsibilities and includes essential terms such as the scope of services or products to be provided, warranties and indemnities, and dispute resolution processes.
The subject matter of a contract varies considerably, from a single transaction for the sale of a product, to the ongoing provision of services over many months. The breadth of a contract will depend on the subject matter, its duration and the complexity of the transaction.
As technology continues to evolve it has become increasingly important to protect a business’s intellectual property.
Intellectual property comprises a range of valuable business assets based on the property of the mind or proprietary knowledge. It includes copyright, trade marks, designs, patents, plant breeders’ rights, trade secrets and confidential information.
Intellectual property such as trade marks, designs and patents can be protected by registration. This protection can be enhanced by using systems and protective agreements when dealing a business’ or individual’s intellectual property.
Copyright encompasses a collection of rights exclusive to the creator of certain original artistic works and materials. The creator has exclusive rights to reproduce the work in material form, to publish or perform the work, to make an adaptation of the work and to communicate it to the public. The creator may also enter into licensing arrangements for the commercial exploitation of the work.
Copyright subsists from the time of creating the work which need not be registered to invoke protection through the Copyright Act 1968 (Cth). Copyright laws form an important part of business or commercial law by protecting against the exploitation of original work and providing remedies to those who suffer loss through infringement.
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There are a variety of structures a business can operate under. These structures include sole trader, partnership, company and trust. A business’s structure is dependent on its growth prospects, the number of members and owners and the potential liability of key...
There are four main types of business structures for conducting business in Australia, each with their own advantages and disadvantages. A person can carry on business as a sole trader, partnership, trust or company. The choice of business structure is an important...
This article looks at companies – how to set one up, and the pros and cons of a company structure. When commencing a business venture, it is necessary to consider the most appropriate type of business structure for your company. Different business structures have...