How to set up an online business and common mistakes to avoid

How do you set up an online business?

How do you set up your online business in a way that gives you clarity and certainty, that will enable you to make good decisions, create accountability and reduce the risk of something going wrong?

You should first consider your business structure.

Choosing your business structure

The most fundamental business enterprise is the sole trader. A sole trader is an individual, the least regulated and easy to set up. The sole trader must register his or her business with the Australian Business Register and get an ABN. A sole trader is personally liable for all debts, crimes and civil liabilities arising from the conduct of the business.

If you want to hire employees, bring in other owners, seek investment, limit your personal liability and take advantage of tax incentives, it's wise to consider a proprietary company.  A proprietary company is a separate legal entity. It requires a minimum of one director. Limited liability means that shareholders are not personally liable for the company’s debts. The shareholder is only liable for the issue price of the shares they own including any unpaid amount on partly paid shares. However, beware. As a director of the company, you have a fiduciary duty to act in the best interests of the company. Often husband and wife or family directors think because they are the only shareholders of the company, they can deal with the assets as they wish. They cannot. A director must:

  • exercise reasonable care, skill and diligence;
  • act in good faith in the best interests of the company and for proper purposes;
  • not improperly use information or their position;
  • disclose and manage conflicts of interest.

A director’s failure to exercise their duties can result in heavy penalties. You should seek independent professional advice for your particular circumstances. Business.gov.au at https://www.business.gov.au has a “Help me decide” tool that helps you work out the business structure that best suits your needs and what registrations you should consider.

Other considerations include taxation. Companies pay tax. Sole traders pay their own personal marginal rates of tax. The business itself does not pay tax. Small businesses are given special concessions through generous deductions and capital gains provisions.

Website

You will need to register a domain name for your website. Check to see whether the name is available – go to auDA at https://www.auda.org.au/. auDA provides a list of accredited registrars that can register your new domain name and manage that registration.

You can build your own website - WordPress (my favourite), Squarespace, Shopify, GoDaddy. Otherwise a web developer can do that for you. Make sure your website is secure with SSL encryption.

Privacy Policy

You must have a privacy policy on your website. Computers and computer networks process and transfer enormous amounts of personal data which can compromise an individual’s privacy and do enormous damage to their finances and/or reputation. Customers want to know you take their privacy seriously. A privacy policy informs your customers about how you will collect, hold, use and disclose their personal information.

If your business has a presence in the European Economic Area (includes EU countries and also Iceland, Liechtenstein and Norway) (EEA) and/or the UK, your privacy policy will also need to comply with the EEA/UK  General Data Protection Regulation which places additional obligations on business owners regarding the protection of personal data. Seek professional advice.

Website terms of use

A website terms of use is a notice to visitors browsing your website. It will set out the rules, that visitors must not use your website for an illegal purpose. Visitors must not post defamatory or offensive materials, harass or cause distress to anyone or disrupt, hack or interfere with the website.

A website terms of use will protect ownership of your intellectual property in the website content and any logos, trademarks or artistic work appearing on your website. Whilst the website terms of use cannot exclude the consumer guarantees under the Australian Consumer Law (ACL), it can limit liability for errors in the website content (assuming those errors are not deliberately false or misleading or misleading or deceptive under the ACL), information available on third party links and intellectual property infringement on external websites.

A website terms of use will sit in the footer of the website appearing on each page. However, there is a question about whether they give a person reasonable notice and are they enforceable? See my discussion below about how this issue can be resolved.

Website terms of sale of goods or supply of services

If drafted correctly, website terms of sale or service are a legally binding contract between the business owner and the purchaser and they will manage your risk. If the goods and/or services are purchased on your website, the customer must be taken to the website terms and conditions and given the opportunity to read them. Make the customer scroll to the bottom of the website terms and you should require them to click a box confirming they have read and understood the terms and agree to be bound by them. Even if they don't read the terms and conditions, they have been given reasonable notice and they will be enforceable. The website terms and conditions should make it very clear that they read in conjunction with the website terms of use and privacy policy making it easier to enforce those documents as well.

A robust website terms of sale of goods and/or services will define when the terms are accepted by the customer and legally binding. It will describe payment terms, method of delivery of products or supply of services, rules regarding discount codes and gift vouchers for products, client obligations regarding the supply of services, cancellation and refund policy, third party content and links, intellectual property rights, privacy, termination rights, liability and governing law.

The website terms of sale of goods or supply of services must not exclude liability for breach of the consumer guarantees under the ACL. However, in certain circumstances, and assuming you were not engaging in any unfair or unreasonable practices, you may be able to limit liability to repair or replacement of goods, costs of repair or supply of equivalent goods, the resupply of services or the cost of resupply of services. You should seek professional advice regarding your obligations under the ACL.

Intellectual property

Copyright is a type of property, “intellectual property”, it comes about, not from an idea or information itself, but your expression of those ideas or information, reduced to a material form.

Copyright laws protect your rights to make a profit from those works developed in the course of your business.

You have the exclusive right to reproduce, publish, communicate to the public, perform in public or adapt the copyright work.

You have the right to:

  • sell or assign your intellectual property to a third party;
  • licence your intellectual property.

A person infringes your intellectual property if they use it without your consent.

The categories of materials protected by copyright under the Copyright Act 1968 (Cth) include literary, dramatic, musical and artistic works, cinematographic films, sound recordings, broadcasts and published editions (typographical arrangements). Copyright in materials is protected in hard copy or electronic form. So creating website content, advertising materials such as brochures, blogs, fact sheets, policy documents, written procedures for business, these materials are protected by copyright.

Non-disclosure agreement

If you’re handing over commercially confidential information to another person, get that person to sign a non-disclosure agreement. You don’t want another person exploiting your intellectual property for their own benefit or poaching customers, suppliers and other business partners away from your business.

Australian Consumer Law

You must be aware of your legal obligations to consumers. When a person or business buys goods or services from your business which are:

  • under $100,000;
  • over $100,000 and of a kind normally bought for personal, domestic or household use or consumption;
  • vehicles and trailers used mainly transport goods on public roads;

that person or business is considered a consumer and entitled to certain remedies under the consumer guarantees if something goes wrong.

Consumer rights do not apply to goods purchased to be resold or transformed into a product that is sold.

The ACL requires that a supplier or manufacturer of goods guarantees to a consumer that:

  • they are of acceptable quality;
  • they match any description provided;
  • any express warranty will be honoured.

The ACL requires that a supplier of goods guarantees to a consumer that they:

  • have clear title (unless otherwise stated);
  • do not have undisclosed securities;
  • are fit for any disclosed purpose;
  • have a right to undisturbed possession;
  • match the sample or demonstration model.

The ACL requires that a supplier of services guarantees to a consumer that they are provided:

  • with due care and skill;
  • fit for any specified purpose;
  • within a reasonable period of time (when no time is specified).

Under the ACL, if a supplier fails to meet a guarantee, the remedy may be:

  • a repair, replacement or refund;
  • cancellation of a service;
  • compensation for damages and loss.

Exemptions do apply for certain goods and services. You should seek independent legal advice regarding any exemptions.

If you engage in unfair business practices you may be in breach of the ACL. Representations made on your website must not be false or misleading. Do not engage in any misleading and deceptive or unconscionable conduct. You must comply with warranties and return policies. You must not have unfair contract terms otherwise a court will deem them to be void. Online reviews must be independent and genuine. If you fail to comply with the ACL, you may incur significant penalties.

Contact me for a free 30 minute discovery call at trudicase.com.au or email me at trudi@trudicase.com.au.

DISCLAIMER - this article is general information only. It is not legal advice. You must seek independent professional advice for your particular circumstances.