Thinking about starting a new product business in Australia? There are many legal and non-legal considerations to take into account! This article provides guidelines to taking your first steps in starting your new product business in Australia. Taking these initial steps can help you when speaking to your lawyer for the first time.
We love working with new businesses that take these steps because it helps us, help you. This information allows us to help plan out where your business will be in one months’ time, to one years’ time or beyond. This means you start off your business on the right foot, with correct legal structure and documentation, a clear idea of costs and a plan for your next steps and milestones.
Please note that this is not a comprehensive guide and there may be further considerations specific to your circumstances.
1. Choose or plan development of your product
Are you creating a brand new, novel product that does not already exist? Or are you putting your own spin on an existing product?
These considerations may change the legal protections you need to put into place in order to protect your product value.
Creating a brand new, novel product? Be very careful about revealing any information about your product and design/formula/composition. Failing to keep your product a secret can result in you being unable to protect your intellectual property in the product. This can result in copycat products and loss of business value.
Putting your own spin on an existing product? You might be putting your own private label on a product, dropshipping the product, or adding your own pattern, colour or shape to a product. In any case, ensure to keep the unique elements of the product under wraps until you have spoken to your lawyer to have appropriate protections. This may include registrations and having confidentiality agreements in place.
Intellectual property law can be complex. Knowing whether you need a registered trade mark, design or patent is an important first step. If done incorrectly, it can impact the business significantly.
2. Consider who will be involved in your product business and your business structure
Are you starting up your business on your own or with a business partner?
Starting up on your own
If you are starting up your product business on your own, the main consideration will be whether you will run the business as a sole trader, a company or other structure. You should speak to an accountant about the tax implications of these structures.
From a legal perspective, the company structure best protects your existing assets such as personal cash, family home or car. Consider if your business is sued, for example, if you have inadvertently infringed a trade mark or your product causes personal injury. If you are a sole trader, your personal assets can be accessed to pay the claim. If you have a company structure, usually only company assets can be accessed.
Insurance can, and should, be taken out to cover this situation. However, having a separate company structure adds a layer of further protection, in case your insurance policy doesn’t cover the claim. There are some exceptions to the protection a company can provide you, such as in the case of fraud of a director.
Starting up with business partner(s)
If you have a business partner (or partners), consider the following:
- How will the split of ownership look like – will you both be equal or will one partner have greater control?
- Will both partners be directors of the business (if it is a company)?
- What will each partner be responsible for?
- What if one partner doesn’t perform the hours/work expected?
- Do you have a personal relationship with the business partner? What should happen to the business if there is a breakdown in the relationship?
- What would you like to happen if one of you wants to leave the business?
- What should happen if a partner passes away?
- How much is each partner contributing to the business monetarily?
Consider your answers to these questions before speaking to a lawyer to get more value out of your consultation.
For further information about business structures, check out our article on Choosing the best business structure.
Other legal considerations for your product business
Do you plan to expand internationally or franchise in the future? If so, you may consider a holding company/trading company structure or other structure to better prepare you for the future.
Are you already working at a business in a similar industry to what you are planning to do? If so, proceed with caution! You should get tailored legal advice about your employment obligations. Your employment contract usually contains:
- non-compete clauses that can prevent you from starting your business under particular parameters, and
- confidentiality/intellectual property clauses that may affect what information you can use.
The consequences of failing to comply with these requirements can be significant, so ensure to get proper advice.
3. Determine your target market and the countries they are from
Who are you selling your product to, and where are they located? A great way to get a better picture of your brand is to build a story around your ‘ideal customer’. This is a common marketing exercise that can help both legally and for future marketing activity.
For example an Australian fashion brand’s ideal customer might be:
21-28 year old woman going to university or TAFE in Australia or New Zealand. She has a part time or casual job that likes to shop online, that wants to look casual, but put together for their day.
From a legal perspective, this exercise helps you establish your brand to obtain registrations and plan your legal framework. In the above example, the business is planning to enter both the Australian and New Zealand markets. Without that initial plan:
- the business may accidentally select a brand name in Australia that is not available in the New Zealand market;
- it would have to re-brand to enter that market, meaning more costs, as well as challenge of re-building brand reputation;
- the business would not be able to plan out finances for the costs to enter into the New Zealand market;
- the business may miss key deadlines to ensure trade mark protection is obtained in New Zealand.
All this information is very helpful when speaking with your lawyer. The Legal Shop will consider this information when providing you initial advice. We can then provide a plan, with general timeframes for each step you need to take.
4. Plan how you are manufacturing your product
Are you manufacturing your product locally or internationally? Depending on your answer, different legal protections may be necessary.
If you are manufacturing overseas, a surprisingly common scam is for a squatter to register your brand in that country. They will often hold your exports or your trade mark for ransom. It is very important to register your trade mark in your manufacturing country to prevent this risk.
Ideally, you should have a confidentiality agreement in place for initial discussions with manufacturers. After you have chosen a manufacturer, a supply agreement is recommended. In practice, it might be difficult to enforce these contracts internationally. However, it is still best to have the contract to clearly outline expectations and to have something to rely on if something goes wrong. Remember, international manufacturers have a reputation to keep as well – it is usually also in their interests to work with you! Having the documentation in place means there is less risk of miscommunication and disputes.
5. Plan how you are distributing your product
Now that you have a business structure, product, target market and location in mind, the next step is to consider how you are getting your products to your target market. The following questions can be helpful:
- Where does your ‘ideal customer’ normally shop?
- Will you be selling online from your own website, or selling on a third party platform such as Amazon or Etsy? Is your own website self-hosted or will you use a platform such as Shopify or Square to build it?
- Will you be selling to the final consumer? Will you be selling to retailers or third party distributors? Or both? Who will be your distributors?
- Will you have a brick and mortar store?
These questions can help determine what legal documents you will need.
For example, if you are selling directly to customers from your own self-hosted website you may need a contract with your IT developer to build your website. If you are using a platform such as Shopify or Square to build it, you will need customer-facing terms and conditions and a privacy policy that take into account these platform terms.
You will need retail policies such as a returns policy and gift care policy that complies with Australian Consumer Law.
If you are selling to retailers or third party distributors, you will need a distribution agreement drafted or reviewed if they provide one.
If you are planning to sell in a brick and mortar store, one of the most important contracts you will enter into is your retail lease. These are often overlooked for review due to cost-saving measures. However, having a bad lease can be, and often is, more costly than getting that initial review and negotiation done. You’re generally locked in for a number years once you sign it. Our lawyers have managed the national lease portfolios of many large retailers, so you are in safe hands with us for a lease review.
6. Speak to The Legal Shop
After those considerations for your product business, it is a perfect time to chat to The Legal Shop lawyers! We offer a free initial consultation and if you provide us with your answers to the above questions prior, we can prepare in advance to make sure you get the most out of your call. We will usually prepare a detailed plan with quotes for you to get a transparent overall view of what to expect.
Of course, you are welcome to speak to us before completing the above steps if you prefer. We can run you through it all step by step to make the process as easy as possible for you. We love to be involved with your business from the very beginning to grow your business and watch it thrive. You’ll also have peace of mind that the legal side is all taken care of for you.
Happy business-building!
