Our frequently asked questions currently cover the following areas:
Buying a business
"Should I use a company to buy the business?"
Answer: The choice of how a business structure is established has profound ramifications. There are times when a company is not an appropriate structure and indeed occasions when a person should own assets in their own name. The choice should be made after considering the full range of relevant issues.
Selling a business
"Should I sack my employees before the business is sold?"
Answer: Unless the issue of employees is handled correctly, a vendor of a business runs the risk of unfair dismissal claims, incurring redundancy pay or even the rescission of the sale agreement by the purchaser. It is difficult to generalise given the range of circumstances, but usually a vendor should ensure that the purchaser is required to offer employees a job as part of the sale of the business to avoid the obligation to make redundancy payments. Some issues such as accrued long service leave and annual leave will be adjusted between the vendor and the purchaser if the purchaser offers the staff continued employment. Other entitlements, such as sick leave, end on the change of employers. Others, such as long service leave for staff with less than ten years service are determined by agreement. There are also potential issues arising from the need for a business to be sold as a "going concern" to obtain GST relief that can impact upon this question.
Commercial leases
"What are the consequences of not providing an appropriate disclosure document for a retail tenancy?"
Answer: The tenant may not have to pay rent and may be able to terminate the lease.
"Why bother doing a title search of the property - I know who owns the land anyway?"
Answer: Apart from the very real possibility that the wrong person or entity is named as landlord, it is also necessary to ensure that any mortgagee has consented to the lease. Unless the mortgagee has done so, if the mortgagee enters into possession of the land then it can effectively ignore the lease and force the tenant from the land so that it can sell with vacant possession.
Contracts
"Can I have a contract even though it isn't in writing?"
Answer: Most contracts don't have to be in writing. Even where there are specific laws requiring contracts to be in writing, such as the sale of land, there are ways of enforcing the contracts if the parties have already partly performed their obligations.
Copyright
"Who owns the copyright?"
Answer: In general, the author of a work (such as a piece of writing, a drawing or a computer program) is the owner of the work. Perhaps the most important exception to this general rule is that copyright in works created by employees in the course of their employment is owned by their employer. This does not apply in the case of a sub-contractor. It is often therefore important to obtain a written assignment of copyright.
Employment law
"What is the difference between "redundancy" and "notice"?
Answer: An employment relationship is a form of contract. In the absence of agreement to the contrary, and to relevant legislation such as the Workplace Relations Act 1996 (C'th) or awards, an employment relationship can be ended by either party by reasonable notice. What is reasonable notice will depend on a variety of factors including length of service, the nature of the employment and whether the person is paid weekly, fortnightly or monthly. The relevant amount may range from an equivalent of one week's pay to (in one recorded case) two years.
In general, a dismissal of employees without reason will be "harsh, unjust or unreasonable" for the purposes of the Workplace Relations Act 1996 (C'th). If a person's job has ended and they will not be replaced then their position may have become "redundant" and this is a recognised lawful reason for dismissal. Many awards and a number of businesses provide for an additional payment to be made in the event of a redundancy. These payments are sometimes referred to as severance pay or redundancy payments. Redundancy payments only apply where the reason for the dismissal is a redundancy. There is a different (favourable) treatment for redundancy payments. These can be up to 16 weeks pay.
Franchising
"Do I need to provide a disclosure document under the Franchising Code?"
Answer: In general, franchises or "franchise like" businesses fall under the operation of the Franchising code of conduct and there is an absolute obligation to provide a disclosure document, even if the business is being transferred or renewed. Some "franchise like" businesses can fall outside the operation of the Franchising code of conduct because the business is properly construed as a "sub-contractor" relationship rather than a franchise. The latter circumstance is comparatively rare and must not involve a "franchise agreement" for the purposes of clause 4 of the Franchising code of conduct. Other exceptions include employment, partnership or tenancy relationships.
Patents
"Can I patent this idea?"
Answer: There are a number of hurdles before an idea can be patented. The key issues include:
- Does the idea constitute "a manner of manufacture" for the purposes of the Patents Act 1990?
- Is it novel?
- Does it involve an "inventive step"?
- Is it useful?
- Has it been used (whether or not in secret) prior to an application for registration (other than for reasonable trial and experiment or was disclosed subject expressly to confidentiality)?
Privacy
"I only operate a small business - why do I have to comply with the Privacy Act?
Answer: While (at present) there is a general exclusion for small businesses, this exemption does not apply if the small business:
- Has contracts with the Commonwealth Government;
- Provides a health service and holds health records;
- Is "related" to a business that does have a turnover greater than $3 million; or
- discloses personal information for a benefit or advantage.
Securities for loans
"Are retention of title clauses worth the effort?"
Answer: A well drafted retention of title clause is often enforceable, even if the relevant customer becomes bankrupt or is wound-up. If, however, the relevant goods have been transformed into other goods (such as glue being used to create chipboard) then the retention of title clause will not be effective. Any attempt to draft a clause that extends to goods that have been changed in this way will almost certainly be void unless it is registered under the Corporations Act (C'th).
"What is a floating charge?"
Answer: A lender can obtain security over land such as a mortgage that would be registered with Land Victoria. It is also possible for a company to grant a security over other assets. Some of the assets (such as plant and equipment) effectively remain available to a creditor over time. These charges are "fixed" because the assets are able to be determined at any time and cannot be sold by the debtor without the consent of the creditor. Other assets, such as stock in trade, constantly come and go. A charge that is "fixed" would prevent the operation of the business. Instead, like an invisible floating net, the charge hovers over the assets until needed. Once the charge (usually a mortgage debenture) is triggered (or "crystallised") then the assets covered by the floating charge at that moment are caught by the net and are in the control of the creditor. A floating charge ranks behind preferred creditors such as employees and is vulnerable if the company is placed into liquidation within six months of the execution of the charge.
Tax
"What are the current tax rates?"
Answer: For the financial year 1 July 2006 - 30 June 2007, the relevant tax rates for most Australian resident taxpayers (excluding the Medibank Levy) are:
Companies:
All income 30%
Individuals:
First $6,000 Nil
To $25,000 15%
To $75,000 30%
To $150,000 40%
Beyond $150,000 45%
Children effectively pay the rate of 45% on unearned income greater than $7723 (after allowance for the low income earners rebate).
Trustees pay tax at the rate of 45% for undistributed income, except in limited cases such as a testamentary trust.
Trade marks
"Do trade marks have to be registered?"
Answer: It is possible to have a trade mark that the law will protect without registration under the Trade Marks Act 1995 (C'th). In general, this can only be done if the owner can show that there is already established goodwill associated with the trade mark. The process of establishing a breach can be more difficult.
"I have already got a registered business name so why would I consider registering a trade mark?"
Answer: Only words can be registered as business names, not logos, shapes or, as can be done under the Trade Marks Act 1995 (C'th), smells. In addition, the system of business names was established to enable consumers and other people dealing with a business to be able to find out with whom they are dealing. It does not provide a mechanism for going to Court to sue someone. The Business Names Act 1962 (Vic) applies to a "business name", which is in the nature of a mask for the owner rather than a trade mark that applies to the product. Finally, business names have to be registered in each State or Territory, unlike trade marks that are registered by a Commonwealth body (IP Australia).
Note: these FAQs do not constitute legal advice, and are subject to this website's
terms of use.
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