Starting a business is exciting, but it’s easy to overlook legal foundations when you’re focused on building your product and finding customers. Here are five common legal mistakes we see Australian startups make—and how to avoid them.
1. Not Having a Shareholder Agreement
The mistake: Founders assume that because they’re friends or have a verbal understanding, they don’t need a formal agreement.
Why it matters: When things go wrong (and sometimes they do), a shareholder agreement protects everyone. It addresses:
- What happens if a founder wants to leave?
- How are decisions made when founders disagree?
- What if someone stops contributing?
- How will equity be handled if the company is sold?
The fix: Create a shareholder agreement before you start working together. It’s much easier to agree on terms when everyone is excited and optimistic.
2. Ignoring IP Assignment
The mistake: Assuming that work done for the company automatically belongs to the company.
Why it matters: Under Australian law, intellectual property often belongs to the creator, not the company—even if they created it for the company. This can create major problems during due diligence when investors ask “who owns the IP?”
The fix: Have all founders sign IP assignment agreements. Ensure employment contracts include proper IP clauses. Document who created what and when.
3. Using Handshake Agreements with Contractors
The mistake: Hiring contractors without proper written agreements because you “trust” them or want to move fast.
Why it matters: Without a written agreement:
- You may not own the work they create
- You have no recourse if they don’t deliver
- They might share confidential information
- You could face unexpected liability
The fix: Always use a written contractor agreement—even for small projects. ExaLaw’s contractor templates take minutes to complete.
4. Choosing the Wrong Business Structure
The mistake: Registering as a sole trader to “keep things simple” when planning to seek investment.
Why it matters: Most investors require you to be a Pty Ltd company. Converting later means:
- Additional costs and paperwork
- Potential tax implications
- Reissuing all contracts
- Confusing your early customers
The fix: If you plan to seek investment, register as a Pty Ltd from the start. The extra cost upfront saves significant hassle later.
5. Neglecting Website Legals
The mistake: Launching a website without proper terms of service and privacy policy.
Why it matters:
- Privacy Act compliance is mandatory if you collect personal information
- Terms of service protect you from user disputes
- Missing policies look unprofessional to investors and partners
The fix: Create proper website terms and a privacy policy before launch. Update them as your service evolves.
Get Your Legal Foundations Right
Most of these mistakes stem from one thing: prioritising speed over proper legal setup. The irony is that fixing these issues later takes far more time and money than doing them right from the start.
ExaLaw makes it easy and affordable to get your legal foundations in place. Our Startup Starter Pack includes everything you need to avoid these common mistakes.