Commercial law encompasses the body of law governing business transactions and affecting commercial entities. Throughout the life of a business, professional advice should be sought that supports its sustainability and growth, protects as far as practicable business owners and directors from personal liability, and minimises legal disputes.
Buying or selling a business
Buying or selling a business requires careful planning to ensure that agreed terms are contained in a written, enforceable contract. The contract should detail the parties’ rights and obligations, deal with matters such as GST and CGT, and set out processes to manage various contingencies.
Business contracts (and the incidental agreements forming part of the transaction, such as commercial leases or service agreements), should be prepared or reviewed by an experienced lawyer who may negotiate additional conditions on your behalf, and carry out any necessary due diligence prior to entering a binding transaction.
When commencing a new venture or buying a business, it is important to operate the enterprise through the most effective structure. Determining the best structure requires consideration of matter such as the parties’ personal and financial circumstances, the size and type of business, the regulatory environment within which the business will operate, and the owners’ 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.
The simplest structure is a sole proprietorship which may be appropriate for small service businesses or trades. Although inexpensive to set up, these structures generally do not protect the owners from personal liability.
If operating as a partnership, a written agreement will assist in managing the business partners’ relationship by defining areas of responsibility and agreed processes for matters such as termination, retirement, sale of partnership shares and business succession.
Joint ventures may be used to conduct a commercial endeavor when the parties wish to avoid the reciprocal rights, responsibilities and liabilities inherent in a partnership. In such cases, negotiations must be documented with certainty and the parties should operate in a manner that avoids the arrangement being deemed a partnership.
Many business owners choose to register a company. A company is an incorporated legal entity with the capacity to enter legally binding transactions in its own right. Apart from some exceptions, officers and directors are not personally liable for the company’s debts.
Companies and directors’ liability
When a company is formed, one or more directors are appointed as authorised officers to conduct its affairs. Directors have several duties to act in the company’s best interests. Essentially, they 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 gain an unfair advantage or to benefit others, to the detriment of the company;
- exercise care, skill and diligence in performing their duties;
- prevent insolvent trading.
Certain defences may be available to a director who has breached a duty to avoid insolvent trading and it is important to obtain professional advice if a company is facing financial difficulties. Company directors may also face challenges that could place them at risk of breaching their common law and statutory duties. In the case of uncertainty, directors should seek urgent advice to clarify their position.
Business contracts and e-commerce
A business may enter numerous commercial transactions during its lifetime. These arrangements should be governed by a written contract setting out the parties’ agreement, their respective rights and responsibilities and other essential terms such as the scope of services or products to be provided, warranties and indemnities.
The complexity of a contract will depend on the subject matter, its duration and the nature of the transaction, whether it be for the sale of a single product or the provision of services over an extended period.
These days most businesses have a website, many conduct transactions online, and some rely exclusively on the internet to run their operations. It is becoming increasingly important for business owners to ensure their online documents such as e-contracts and website terms and conditions are compliant and reflect best practice.
Involving a lawyer in preparing your business contracts and website terms can help keep negotiations on track and ensure that important provisions are not overlooked.
The need to recover overdue debt is an unfortunate but common occurrence experienced by most commercial entities. The course of action taken in pursuing an unpaid debt will depend on the debtor entity, the amount owed and the surrounding circumstances. Choosing the most cost effective and appropriate method is important to avoid adding unnecessarily to the amount already owed.
Intellectual property comprises a range of business assets such as inventions, brands, trade marks, designs, patents, plant breeders’ rights, trade secrets and confidential information.
Property such as trade marks and patents may be protected through registration. Copyright encompasses a collection of exclusive rights to the creator of certain original works and materials and is inherent when the work is created. The creator has the right to reproduce, publish or perform the work, make an adaptation of the work and communicate it to the public. The creator may also enter into licensing arrangements for the commercial exploitation of the work.
Intellectual property is a valuable commodity and businesses should take appropriate registration steps (where relevant) and have agreements and processes in place that protect against infringement of all intellectual property.
We have a deep understanding of the diverse matters and laws that impact the life of a business enterprise and have provided years of pragmatic, tailored advice and solutions to assist our commercial clients.