You’ve Got a Great Idea…Now What?
Australia isn’t short of incredible entrepreneurs with brilliant ideas…but it’s how they execute those ideas that determine their prospects for success.
Successfully converting an idea into a reality is a marathon, not a sprint. That’s why you need to nail the fundamentals. The fundamentals form the foundations of your business and allow you to accelerate without hesitation when it comes to crunch time.
At LUNA, we have a dedicated team of legal legends that deal with exactly that! We work with thousands of early stage startups and founders and help them navigate their ‘scary’ legal needs right from the outset. Our goal is to get you off the mark (without you having to look back!) Whether you intend on legitimising your ‘side hustle’ or simply want to raise funds and be ‘investor ready’ – this is for you!
Here are our essential legal considerations that we recommend you explore as a budding entrepreneur in Australia:
1. Set Up a Company
First and foremost, we always recommend adopting a company structure.
There are a whole raft of reasons why adopting a company structure is important, but the key things to keep in mind is that it protects your personal assets from commercial liabilities, sets up the business to incentivise future employees with shares, and is the optimal way to take on investment.
There are 3 main types of company structures our clients use:
Sole Company
2. Holding Company/Operating Company
The ⭐ Gold Star ⭐ Structure
We’re sure you’ve already guessed, the gold star structure puts founders in the best possible position to be protected.
Gold Star Structure
However, as a base recommendation we always suggest the Holding Company/Operating Company setup. This allows the company to add an extra layer of liability protection, whereby the HoldCo holds anything of value (IP, investment, etc) and the OpCo enters into agreements that may carry risk (contractors, employees, etc).
2. Execute a Founder’s Agreement
It is super important (we cannot stress this enough) to have an agreement in place between founders.
A Founder’s Agreement establishes the framework on how the company will run and the rights and responsibilities of the founders (the only shareholders in the beginning). There are important clauses in place, planning out the course of action if a founder leaves the company, and the circumstances in which they leave (good/bad leaver provisions).
I can already hear you saying “But wait, my co-founder and I are best friends and we always agree on everything!” It’s all fun and friendly until it’s not! A Founder’s Agreement will give founder’s certainty in uncertain times – which is why it’s so important.
Key terms in a typical Founder’s Agreement include:
Appointment and removal of Directors;
Major decisions requiring Board/Shareholder approval;
Founder vesting schedules;
Share buy back provisions;
Drag along/Tag along rights; and
Intellectual property provisions.
Note: If and when you bring on investors or other shareholders, this document would need to be updated to a Shareholders Agreement to be all encompassing.
3. Assign Intellectual Property (IP)
Here’s the lowdown on IP before we get into why it’s important:
IP is a term that broadly applies to something that is created, designed, invented or written by an individual.
IP is an umbrella term - we’re talking about various different subsets within IP such as brand name or logo, confidential information, software, etc.
It can be commercialised through sale, transfer or licence.
To sum up, your IP is worth something – it’s valuable, and therefore it’s most definitely worth protecting.
In Australia, the law states that a creator owns its IP. This means that unless it’s specifically transferred to another person or company, or the creator is under an employment agreement, the IP will remain in the hands of the person who created it.
Remember when you were up late at night designing your logo, or building the software for your platform? You own that IP.
All IP should be sitting with your company. This includes anything created by you as the founder, or any IP developed by contractors, employees or other companies. This can more often than not be done through an IP assignment deed, an employment agreement or a contractor’s agreement that has strong IP clauses.
Top Tip: If you’re outsourcing the creation of your brand logo on Fiverr, make sure the IP will transfer over to you upon the completion of the project!
It becomes particularly important when investors are looking to come onboard and understand the value that your company holds. They need certainty that the IP (and its value) is sitting with the company (instead of you personally), an external contractor or an ex-employee.
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Those are the 3 key considerations that you must take into account if you’re ready to legitimise your great idea! There are so many more elements that you can explore as you go along your journey, including:
Contractor agreements
Client agreements
Trademarking
Privacy policies; and
Terms and conditions.
We’d love to get to know more about you and your startup to see how we can help. Feel free to slide into our inbox or reach out on Linkedin – we’re here to help launch your great idea into your forever business 🚀
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