BM- U2O1 Legal Requirements and Financial Considerations

What legal obligation does all business owners have to fulfil when commencing and operating a business?

To observe the statutory regulations when commencing and operating a business.

This includes many licenses, permits, approvals, and authorities need to be taken into account.

Businesses that do not obey the law risk losing customers and their reputation, being fined, or losing the right to continue trading.

What is a business name registration?

Form of legal requirement when commencing a business.

The process of registering a business name with ASIC to ensure the name is not already taken and to allow consumers to identify the business owner.

Required unless the business uses the owner’s personal name.
e.g. ‘Pty Ltd’, ‘Motors’, ‘and Associates’ or ‘and Co’, is added to a personal name then it must be registered. This is to prohibit anyone else from trading under a similar name, and to protect consumers by allowing them to identify the owner of a business name.

Business owners need an ABN or ABN application reference number.
The name should be checked on the ASIC website first.

Registration of a business name does not protect or establish any specific rights to that name. If the business name is a crucial part of the business’s operation, then it should also be registered as a trademark with the federal agency responsible for intellectual property (IP Australia), which administers the Trade Marks Act 1995 (Cwlth).

Company name

Not legal requirement apart of business registration
The owner of a company can register the business’s name, although a company name is not compulsory. A company can be known by its Australian Company Number (ACN), a unique number ASIC issues to every registered company. The public must be able to tell if the registered company is a public or private company. For example, a private limited company must include the words ‘proprietary’ and ‘limited’ or abbreviations of these words at the end of its name. The name of a company can be registered when the owner goes through the process of registering his or her company.

What is a domain name?

Form of legal requirement when commencing a business.

A domain name is the unique address of a business’s website on the internet.

• Helps customers find the business online.

• Should be unique, easy to remember and spell.

• Businesses can register multiple domains to prevent confusion with similar businesses.

• Usually costs around $10–$100 per year to register.

What is taxation compliance?

Form of legal requirement when commencing a business.

Taxation is money collected by the government from individuals and businesses to fund government spending.

Administered by the Australian Taxation Office (ATO).

A business owner establishing a partnership or company will need to obtain a tax file number (TFN) for the business. This is a unique number issued by the ATO to individuals and organisations to assist with managing tax and other government services. A TFN can be acquired at the same time as an ABN.

Businesses may pay different taxes depending on their activities.

Income tax

Federal income tax is levied on the taxable income of an individual or a business. It is calculated differently for individuals and companies. Companies pay a flat rate tax of 30 per cent for larger businesses or 25 per cent for businesses with a turnover less than $50 million. Individuals, on the other hand, pay a progressive tax rate, whereby the rate of tax increases with the amount they earn

Major federal taxes that apply to business

Pay as you go (PAYG) withholding Taken from an employee’s salary or wage directly Imposed on the employee

Goods and services tax (GST) A broad-based tax of 10 per cent on the supply of most goods and services consumed in Australia Imposed on all consumers Businesses are only required to register for GST if they earn $75 000 or more in a financial year.

Fringe benefits tax (FBT) Tax on the provision of a benefit to an employee — such as a car for private use, or a low-interest loan — in place of a wage or salary Imposed on the employer

Major state taxes that apply to business

Stamp duty Placed on documents that give evidence to transactions, such as the purchase of property Imposed on the individual or business

Land tax Annually levied on the owner of the land

What is a Business Activity Statement (BAS)

Any business registered for GST must complete a business activity statement (BAS). This is a form submitted to the ATO to report a business’s taxation obligations. Businesses can remit tax due on income earned during the period as well as any GST and employee PAYG withholding obligations. The BAS is lodged periodically with the ATO.

What are local government legal requirements

• Any business using premises or land must first seek local government approval.

• Commencing trading before approval is obtained could result in the closure of the business and wasted time, money and effort
  
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• land zoning and the purpose for which a building or land can be used

• new development applications and alterations to existing premises

• fire regulations, especially the provision of adequate fire-prevention facilities

• parking regulations governing the number of parking spaces that need to be provided

• health regulations

• business signs — their size, shape and location.

Zoning regulations

Type of local government legal requirement.

Each council has a local planning scheme that describes the types of activities or developments that may occur in different areas of a suburb or district. Land is zoned for particular uses, such as residential, industrial, business or other. This ensures on ensures that business activities do not infringe on residential areas.

When commencing a business, the owner must consult with the local council to find out which zoning regulations will affect the business now and in the future

Health Services

Type of local government legal requirement.

Local government also ensures compliance with health regulations under the Food Act 1984 (Vic). Each local council supplies businesses (primarily those dealing with food, such as cafés, restaurants, butcher shops and bakeries) with the regulations and standards they must meet in order to obtain a licence to operate.

A health officer will inspect premises regularly, often without warning, to ensure the business owner maintains standards. If problems occur, then the business is given a period of time to rectify the situation or it will be closed down. Local councils may also register and inspect other premises such as accommodation and hairdressers to ensure they meet hygiene and safety requirements.

Work health and safety regulations

Form of legal requirement when commencing a business.

Under the Work Health and Safety Act 2011 (Cwlth), a business owner must ensure the health and safety of workers while they are at work in the business, so far as is reasonably practicable. Each state and territory in Australia is expected to pass its own laws consistent with the Commonwealth Act so that occupational health and safety laws are uniform across all states.

In Victoria, the Occupational Health and Safety Act 2004 (Vic) is the principal legislation covering occupational health and safety. This Act:

• secures the health, safety and welfare of employees and other persons at work

• eliminates risks to health, safety or welfare of employees and other persons at work

• ensures that the health and safety of other members of the public are not placed at risk by the conduct of undertakings by employers and self-employed persons

• provides for the involvement of employees, employers and organisations representing those persons in the formulation and implementation of health, safety and welfare standards.

WorkSafe insurance (WorkCover)

In Victoria, work health and safety legislation is administered by WorkSafe Victoria. This government agency aims to reduce workplace injuries and support injured workers. WorkSafe has the power to inspect work sites and prosecute employers for any breaches of health and safety requirements.

As well as enforcing Victoria’s occupational health and safety laws, WorkSafe provides WorkCover insurance, which is a compulsory expense for Victorian employers. It provides employers with insurance cover if workers are injured or become ill as a result of their work.

The insurance may cover:

• replacement of lost income

• medical and rehabilitation treatment costs

• legal costs

• lump sum compensation in the event of a serious injury.

Consumer protection and fair competition

Form of legal requirement when commencing a business.

Australia has both federal and state laws in place to ensure that businesses and consumers are protected from unfair trading practices. Furthermore, each major industry has its own code of practice, which provides businesses with guidelines for dealing with customers. A business must familiarise itself with its industry’s code of practice as well as any state or federal laws that may affect its day-to-day operations. A failure to abide by these laws can result in heavy fines for the business.

The business owner must comply with trade practices legislation when establishing his or her business. The Competition and Consumer Act 2010 (Cwlth) is a federal law that specifies what business behaviour is acceptable in relation to a wide range of issues, from product safety and pricing to the way in which a business competes in the marketplace. The Australian Consumer Law is set out in Schedule 2 of the Competition and Consumer Act and covers issues such as misleading or deceptive conduct, unfair practices, conditions and warranties. The Competition and Consumer Act is administered by the Australian Competition and Consumer Commission (ACCC), which promotes competition and fair trading across the nation. Australian courts and tribunals can enforce the Competition and Consumer Act and the Australian Consumer Law.

In Victoria, the Australian Consumer Law is enacted through the Australian Consumer Law and Fair Trading Act 2012 (Vic). This legislation is administered by Consumer Affairs Victoria.

Anti-competitive practices

Consumer protection and fair competition

The Competition and Consumer Act 2010 (Cwlth) either prohibits or places strict controls on the following activities by business:

• Cartels (ss.45AA–45AU). A cartel exists if two or more businesses that would normally be in competition with each other agree to act together. The Act prohibits businesses from making agreements with competitors to fix prices, rig bids, share markets or restrict outputs. For example, it is illegal for businesses to communicate before lodging bids and agree among themselves who will win and at what price (rigging bids). It is illegal for two businesses in competition with each other to agree to set identical prices for their products (price fixing).

• Misuse of market power (s.46). The Act prohibits businesses with a substantial degree of market power from engaging in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market. For example, a business should not take advantage of its power to damage or get rid of a competitor, prevent anyone from competing in a market or prevent another competitor from entering a market.

• In 2020, the Federal Court dismissed the ACCC’s bid to block a $15 billion dollar merger between Australia’s third and fourth largest telecommunications companies, Vodafone and TPG. Judge Justice John Middleton ruled that the merger would not unduly reduce competition, despite the ACCC’s argument that preventing TPG from building a fourth mobile network would significantly reduce competition in the Australian mobile market. In 2021, the ACCC produced analysis of increased mobile phone plan prices as validation of its stance to block the merger, arguing for the need for more rigorous laws regarding mergers and acquisitions.

  Exclusive dealing (s.47). This occurs when one business trading with another imposes restrictions on the other’s freedom to deal with other businesses. An example is when a hair products supplier will only sell to a hairdresser on the condition that the hairdresser does not purchase hair products from a competitor of that supplier. This can be legal in some circumstances if it is not seen to lessen competition in the market for the products in question. For example, McDonald’s sells Coke products but not Pepsi. Businesses that wish to enter such an arrangement, and believe it may be legal, must notify the ACCC of the agreement. The ACCC will then examine the details before either approving or disallowing the arrangement.

• Resale price maintenance (s.48). This occurs if a supplier sets the prices at which retailers will sell their products. Suppliers can recommend a retail price for the sale of their goods, but it is illegal to attempt to force a retailer to sell at that price. It is also illegal to set a minimum price that sellers must not sell below, and to force a retailer not to discount goods. On the other hand, it is quite legal for a supplier to insist on a maximum price, as this can discourage a retailer who has a monopoly in a particular location from overcharging customers.

• Mergers and acquisitions (s.50). The Act prohibits any merger or acquisition that would have the effect, or be likely to have the effect, of competition being substantially lessened. Mergers between one or more businesses and acquisitions can be important for the efficient functioning of the economy, as they can allow businesses to achieve efficiencies and spread their risk. Therefore, a merger or acquisition may be permitted if it does not substantially limit competition. Planned mergers and acquisitions must be notified to the ACCC, which will determine if they can proceed.

The Australian Consumer Law

Consumer protection and fair competition
undesirable and misleading practices that are illegal under the Competition and Consumer Act:

• Misleading or deceptive conduct. A business must not engage in conduct that is misleading or deceptive or that is likely to mislead or deceive. For example, advertisements must avoid words that are deceptive or make false claims or impressions about a product. Businesses must reveal full information about prices (especially in ‘buy one get one free’ situations) and not mislead customers about the origin of products (e.g. using a ‘Made in Australia’ logo when the product was manufactured overseas).

• Unconscionable conduct. This is conduct in business transactions that is unfair or unreasonable and goes against good conscience. It is illegal for businesses to engage in unconscionable conduct when dealing with other businesses or with customers. Our contemporary case study Bupa provides an example of how a business can engage in unconscionable conduct. 

• Unfair contract terms. A contract is a legally binding agreement between two or more parties. Unfortunately, some businesses draw up unfair contracts that are detrimental to the consumer. An example is if a contract allows a business to vary prices without notifying the consumer. Contracts must be clearly worded, legible and available to all parties.

• False or misleading representations regarding goods or services.  A false or misleading representation is a statement that is untrue, such as claiming that a motor vehicle has a certain fuel consumption performance when it does not.

• Offering gifts and prizes in connection with the supply of goods and services and then not providing them.

• Bait advertising. This involves advertising products at reduced prices without a reasonable supply for customers to buy. A business attempts to attract customers by advertising some products at lower prices. When the advertised products quickly run out, customers are directed (or switched) to higher priced items.

• Pyramid schemes. Participation in pyramid schemes is illegal. A pyramid scheme involves a person or business making money by recruiting people, rather than providing a genuine good or service. Promoters at the top of the pyramid profit from having people join their ‘money making’ scheme. New members are promised payments for recruiting other investors or new participants. Those at the top pocket the fees and other payments made under them. Most participants, however, never make money; most lose all the money they paid to participate.

• Referral selling. This occurs when a business offers a customer benefits, such as a special deal or special price, if the customer refers other potential customers to the seller. This is illegal because it may encourage consumers to spend more money than they planned with the expectation that they may recoup some if they encourage others to buy.

The following are some examples of lawful (legal) sales practices under the Competition and Consumer Act:

Door-to-door sales are tightly controlled by the Australian Consumer Law.

• Unsolicited consumer agreements. Unsolicited agreements refer to when a business contacts a consumer without the consumer having invited the contact. It happens most commonly through telephone and door-to-door sales. This practice is legal, but only between the hours of 9 am and 6 pm on weekdays, and 9 am and 5 pm on Saturdays. It is not permitted on Sundays or public holidays. A further limitation is that salespeople must show identity cards, must leave immediately if requested and must refrain from further contact for at least 30 days.

• Lay-by agreements. These must be in writing and be transparent (expressed in plain language, legible and presented clearly). The agreement must specify all terms and conditions, including any termination charge.

• ‘Proof of transaction’ and itemised bills. A retailer must provide an itemised bill on request; a retailer must provide a receipt for all transactions over $75 and, on request, for transactions under $75.

Consumer guarantees

The Australian Consumer Law sets out protections for consumers who buy goods and services from businesses. Consumer guarantees are a comprehensive set of rights and obligations in relation to the supply of goods and services to consumers. All suppliers and manufacturers automatically provide guarantees on the products they sell to consumers. These exist regardless of any express warranty provided by the manufacturer. A business cannot eliminate consumer rights under the consumer guarantees, but they can extend and improve these basic rights.

Australian Consumer Law provides the following guaranteed rights:

• The consumer will gain clear legal title to goods; that is, that the seller actually owns the goods being sold, and can legally transfer ownership to the buyer.

• Goods must correspond to any sample, demonstration model or description provided to the buyer.

• Goods must be of acceptable quality; that is, they must be safe, durable, free from defects, acceptable in appearance and finish, and do all the things that the goods are ordinarily used for. If a consumer purchased a sandwich that contained human hair or was past its use-by date, the sandwich would not be considered of acceptable quality.

• Products must be fit for a particular purpose. Fitness of purpose means the product will perform as the instructions or advertisement implies. A pair of running shorts being sold as football shorts, for example, would be a breach of a condition to supply goods for the purpose for which the seller knew they were intended.

• Repairs and spare parts are reasonably available.

• Services are carried out with reasonable care and skill.

• Services are completed within a reasonable time.

If a good or service that a customer purchases fails to meet a consumer guarantee, they have the right to ask for remedy through a repair, replacement or refund under the Australian Consumer Law.