Good Information Articles

Understanding The Law... Business & Commercial Law

The following Q&A's have been provided to help you better understand Business & Commercial Law.

Q. Money was subscribed to a company on the basis that I would be a shareholder. Yet a check with ASIC indicates that this has not occurred?

A. Basically you will need to prove intention at the time the money was directed to the company and the best way to do this is if there is something in writing which supports this contention. Alternatively if this cannot be done your status will either be that of investor or lender.

Q. I run a successful business and am wondering because I have restricted capital what I should do to develop it further?

A. One of the areas which should be looked at is franchising. This allows people with limited capital to expand by growing their capital base provided they have a business model which works and will allow the franchisee to profit from it. There are a number of documents which have to be produced to comply with ASIC?s requirements and these will vary depending upon the business model adopted. In some cases they include leases and licences over premises where a considerable investment is involved.

Q. I am currently considering entering into a joint venture. What should I do?

A. If you are considering entering into a joint venture with a person or entity you should ensure that all negotiations are delayed until a confidentiality agreement has been signed. In today?s world there may be some intellectual property considerations or confidential matters which need to be kept out of the public domain and to start discussing these without adequate protection is foolhardy to say the least.

Q. I am a franchisee and paid good money for the franchise which I operate. Recently it came to my attention through a number of other franchisees that the master franchisor is refusing to accept his responsibility to ensure that poaching does not occur. What should I/we do in the circumstances?

A. Franchise agreements exist to protect the franchisor and franchisee. Given that there are a vast number of franchises the first thing you should do is seek the services of a competent franchise solicitor. Basically you should put the franchisor on notice either by yourself or in concert with other franchisees pointing out the nature and extent to which poaching is going on and the action you wish the franchisor to take. If this fails then you are entitled to rely upon the Franchising Code of Conduct and the franchise document to ensure that the franchisor abides by his responsibilities. Of course you are entitled to seek both legal and equitable remedies in these circumstances. Mediation should also be considered.

Q. I wish to set up my own franchise and I need an indication of the cost to draft the necessary documents required by law?

A. Professional costs depend upon the type of franchise involved with franchise agreements in some cases being fairly short ? to approximately 40 pages and in other cases fairly long - to 300 pages. Most franchise?s professional fees will fall somewhere between $4,000 - $10,000 plus GST as we are not talking about just one but sometimes as many as five or six documents all which play an important part in the franchise operation and which are prescribed by law.

Q. I am currently involved in a business which relies on a number of independent subcontractors to carry out the work necessary for the business to continue to operate. I have been approached by the Australian Taxation Office stating that as far as they are concerned I am responsible for the PAYW and that I should remit it to them. I have checked their website and noticed that in the particular industry in which I am engaged they have set up a model which is contrary to what they are saying to me. What should I do?

A. There are a number of tests which have to be applied where independent subcontractors are involved. The main one is the control test and although some commentators say it is not conclusive it is of some assistance in trying to determine the status of whether or not the so-called independent subcontractors are just that or deemed employees. Even if you are complying with a taxation model and the ATO were prepared to accept that it does apply, there is no doubt that over time your position may be contested in court and where they have no other employer and are supervised, directed and controlled by you then it is highly likely that they will be found to be deemed employees which has certain taxation consequences for you. Irrespective you need to seek independent legal advice to determine what is best for you given your particular circumstances.

Q. I have developed a unique business which I wish to franchise as I do not want employees. What should I do in the circumstances?

A. Given that you have a unique business then the first thing you need to do before you enter into negotiations with anyone is to have any particular prospect with whom you may be involved sign a confidentiality agreement. Secondly you need to make it financially attractive for them to want to continue and to offer a business model which is both attractive and financially beneficial to them if they become a franchisee of yours. If you wish to develop a national franchise then you will need to consider the desirability of whether you will need to take on staff. All legal issues should be dealt with by your lawyer and all business matters referred to your business adviser or accountant.

Q. I am currently in trouble with my finance company as I am behind in my instalments. Should I declare myself bankrupt?

A. Most people tend to think that bankruptcy is an effective way to defeat their creditors. Bankruptcy should only be entertained where you are in serious financial difficulty and have no way of paying back the finance provided. Generally speaking bankruptcy can last for three, five or seven years depending upon the individual circumstances of the bankrupt.

Q. If I declare myself bankrupt will I be able to escape my creditors and get on with my life and start again?

A. No. One of the reasons why a bankrupt may not be given a discharge for three, five or seven years is because where the bankrupt is in employment or able to find employment then all of their money after payment of their income tax which is not required for the necessities of life will be taken by the trustee in bankruptcy and applied to payment of their debts where creditors have lodged a proof of debt with the trustee. In other words it is not simply just a matter of declaring yourself bankrupt and then being able to use all of your disposable income for your own purposes. It is this latter point which most people tend to overlook.

Q. Will it take me very long to obtain a certificate of independent legal advice

A. The answer is that it depends upon what is involved to review all the documents before the certificate can be issued. There are various insurance and legal requirements that need to be met to ensure that the client is properly advised, and normally the charges are based on the amount of time taken at the applicable hourly rate charged by the legal practice. A solicitor would be guilty of professional misconduct if they issue a certificate without properly reviewing and explaining the documents.

Q. I have been living with a man for approximately 20 years and during that time we purchased a house and an extra block of land with borrowed funds. As part of the loan agreement there was a redraw facility and when it became obvious to me he was a gambler I directed the bank to refuse him access to the account. Unfortunately this was not done and extensive debts have been run up with the bank now calling on me to satisfy the outstanding balance as we held both properties in joint names. What can I do?

A. You need to retain a solicitor urgently and have them negotiate with the bank as to what they are prepared to accept. If they are not prepared to accept a sensible arrangement then have your lawyer advise you of your rights under the Bankruptcy Act so that the protection afforded there may be available to you without having to be declared bankrupt. In the meantime if your ex-partner is in employment then seek to have his wages garnisheed to assist to satisfy the outstanding balance. If the bank has acted improperly then before you take any of the above action it may be appropriate to have your solicitor point out the nature of the bank?s involvement and the problem would never have arisen in the first place if they had done as instructed and looked to compromise the matter without proceeding to court.

Nominate a Lawyer http://www.nominatealawyer.com.au is a network of carefully selected, highly qualified business commercial lawyers in Sydney, Melbourne and Brisbane.

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