Starting a technology business is exciting. Whether you're developing a SaaS platform, launching an app, providing technology consulting services or building an AI-powered solution, there's a lot to consider beyond developing your product and finding customers.
While founders often focus on technology, funding and growth, getting the legal and commercial foundations right from the beginning can help avoid costly disputes and protect your business as it grows.
Here are some key considerations when setting up a technology business in Australia.
1. Choosing the Right Business Structure
One of the first decisions is how to structure your business.
Common business structures in Australia include:
Sole trader: Simple and inexpensive to establish, but you are personally responsible for the business's debts and liabilities.
Company (Pty Ltd): A separate legal entity that generally provides limited liability for shareholders, although directors can still incur personal liability in certain circumstances.
Partnership: May suit businesses with two or more founders, although partners can be personally liable for partnership obligations.
Trust: Can provide flexibility in certain circumstances, but involves additional complexity and administration.
For technology businesses seeking investors, employing staff or developing valuable intellectual property, a company structure may be worth considering.
Your choice will depend on factors such as ownership, liability, funding plans, taxation and future growth. It's worth seeking legal and accounting advice before deciding.
You'll also need to consider business registrations, including an ABN, business name and GST registration where applicable.
2. Protecting Your Intellectual Property
For many technology businesses, intellectual property (IP) is one of their most valuable assets.
This might include software code, applications, algorithms, databases, designs, branding and other proprietary materials.
A common misconception is that paying someone to develop software automatically means you own the intellectual property.
This is not necessarily the case. If you engage an external software developer, designer or contractor, the contract should clearly address who owns the IP created, including whether ownership will be assigned to your business.
Other considerations include:
Ensuring your business has appropriate rights to software and materials developed by third parties.
Clarifying ownership of pre-existing IP brought into the business by founders.
Considering trade mark protection for your business or product name.
Understanding restrictions associated with open-source software and other third-party code.
Establishing clear IP ownership from the outset can be particularly important if you later seek investment, sell your business or commercialise your technology.
3. What Contracts Does Your Tech Business Need?
The contracts you need will depend on your business model, the services or products you offer and who your customers and suppliers are.
Some common agreements include:
Customer Terms and Conditions. These set out the terms on which you supply products or services, including payment obligations, liability, intellectual property, termination rights and dispute resolution.
SaaS Subscription Agreements. If you provide software on a subscription basis, your agreement should address matters such as permitted use, subscription fees, service availability, data handling, support, suspension and termination.
Master Services Agreements (MSAs) and Statements of Work (SOWs). Technology consultancies and service providers often use an MSA to establish the overarching legal terms, with individual SOWs setting out the scope, deliverables, fees and timelines for specific projects.
Software Development Agreements. If you're building software for a customer or engaging someone to build software for your business, a development agreement should clearly address scope, acceptance testing, milestones, payment and IP ownership.
Reseller, Distribution and Partner Agreements. If your business resells third-party software or works with distributors and technology partners, these agreements should clearly establish your rights, obligations and responsibilities to customers.
Employment and Contractor Agreements. These should cover confidentiality, intellectual property, responsibilities and other appropriate terms relevant to the engagement.
Not every technology business requires every agreement. The important thing is ensuring your contracts reflect how your business actually operates rather than relying on generic templates that may not suit your commercial arrangements.
4. Using Third-Party Software, Platforms and AI Tools
Most technology businesses rely on third-party tools, whether for cloud hosting, payment processing, customer relationship management, analytics, communications or AI functionality.
For example, your business might use AWS or Microsoft Azure for hosting, Stripe for payments, or an external AI service to power part of your product.
Before incorporating third-party technology into your business, consider:
Licensing rights: Does the supplier's agreement permit your intended use, including commercial use, integration, sublicensing or resale?
Data handling: What information will the provider access, store or process, and where?
Service availability: What happens if the provider experiences an outage or discontinues a service?
Liability: What responsibility does the supplier accept if something goes wrong?
Termination: What happens to your customer data and business operations if the relationship ends?
AI tools: Are there restrictions on uploading confidential information, using generated outputs or incorporating AI functionality into products offered to customers?
Importantly, your obligations to customers may be broader than the commitments your third-party suppliers make to you.
For example, if your business promises a particular level of service availability but your cloud provider offers more limited commitments, you may be exposed when an outage occurs. Your customer contracts should align with the rights, restrictions and protections available under your supplier agreements.
5. Do You Need a Non-Disclosure Agreement (NDA)?
When developing a technology business, you may need to share confidential information with potential partners, developers, investors, contractors or customers.
A Non-Disclosure Agreement (NDA) can help protect sensitive information by placing contractual restrictions on how it may be used and disclosed.
There are generally two types:
One-way NDA: Suitable where only one party is disclosing confidential information.
Mutual NDA: Suitable where both parties will exchange confidential information.
An NDA may be particularly useful before sharing proprietary technical information, source code, commercially sensitive business plans or confidential customer information.
However, an NDA is not necessary for every business discussion. For example, some preliminary conversations may involve little or no genuinely confidential information, and many investors will not sign NDAs during initial pitches.
It's also important to remember that an NDA does not, by itself, transfer ownership of intellectual property.
6. Privacy, Data Protection and Cybersecurity
Many technology businesses collect or process personal information, including customer contact details, payment information, user accounts and potentially sensitive data.
Depending on your business activities, you may have obligations under the Privacy Act 1988 (Cth) and the Australian Privacy Principles.
Although many businesses with annual turnover of $3 million or less are exempt from parts of the Privacy Act, exceptions apply, including to certain health service providers and businesses trading in personal information.
Key considerations include:
Identifying what personal information your business collects and why.
Determining whether you need a Privacy Policy and collection notices.
Understanding how third-party providers access and process customer information.
Considering overseas disclosures of personal information.
Establishing appropriate information security measures.
Preparing for potential data breaches.
Even where particular privacy obligations do not apply, customers and commercial partners may still expect appropriate data protection practices.
For SaaS businesses and other technology providers processing information on behalf of customers, a Data Processing Agreement (DPA) may also be required.
Cybersecurity should be considered from the outset, including access controls, multi-factor authentication, backups and incident response procedures.
7. Website Terms, Marketing and Customer Communications
Your website or application may also require legal documents tailored to its functionality.
Depending on your business, these might include:
Website Terms of Use: Rules governing access to and use of your website.
Privacy Policy: Information about how personal information is handled.
Platform or App Terms: Terms governing registration, user conduct, subscriptions and use of your technology.
Refund and Cancellation Policy: Information about cancellations, refunds and applicable customer rights.
If you're marketing your services by email or SMS, you'll also need to consider Australia's spam laws, including requirements relating to consent, sender identification and unsubscribe functionality.
Customer-facing terms must also comply with applicable Australian Consumer Law requirements, including consumer guarantees and laws concerning unfair contract terms.
8. Planning for Growth and Managing Risk
As your business develops, it's worth considering what may change over time.
For example:
Will you bring in investors or additional shareholders?
Will you engage contractors or employees?
Will you expand into overseas markets?
Will you introduce new products or subscription models?
Will you license your technology to other businesses?
Could you require professional indemnity, cyber or other business insurance?
If you're establishing a business with co-founders, a shareholders' agreement is also worth considering early. It can address decision-making, ownership, founder departures, share transfers and how disputes will be resolved.
Thinking about these matters at the beginning can reduce the need for expensive restructuring or contractual changes later.
Summary
Setting up a successful technology business involves more than building a great product.
Choosing an appropriate business structure, protecting your intellectual property, understanding third-party licensing arrangements and putting suitable contracts in place can help establish a strong foundation for growth.
You don't necessarily need every legal document on day one. The priority is identifying the key risks associated with your particular business model and addressing them as your business develops.
How Pixel Legal Can Help
At Pixel Legal, we work with technology businesses, SaaS providers, software developers, startups and technology consultancies on their commercial and technology contracting needs.
Whether you're preparing to launch, reviewing your customer agreements or entering into arrangements with technology suppliers and partners, we can help you put appropriate contractual protections in place.
Contact Pixel Legal to discuss the legal and commercial agreements your technology business may need.
Disclaimer: This article provides general information about Australian legal and commercial considerations and does not constitute legal advice. Specific requirements will depend on your business model and circumstances.
