The Legal Aspects of Buying an Online Business
Are you interested in buying an online business? This article will give you a good start in understanding the legal aspects involved in the acquisition process. We will discuss the vital questions to ask when buying an online business and the nuanced legal issues you should discuss with your commercial lawyer before signing the dotted line.
The Appeal of Buying an Online Business
E-commerce is constantly growing in Australia and worldwide. For instance, the fastest-growing e-commerce categories in Australia are food & liquor and large retailers. So, it is no surprise if you want to take over an online food delivery company or purchase a promising online marketplace that offers a variety of products.
More companies prefer an online business model due to its numerous benefits. These advantages range from lower operational costs to more efficient daily operations. While online businesses may be easier to run than traditional models, it is crucial to be aware of the legal obligations and risks involved before purchasing one. There are certain nuances to navigating legal issues when your business is purely online.
Intellectual Property and Trademarks
One of the primary legal considerations when buying an online business is the intellectual property (IP) associated with the business. This includes trademarks, copyrights, patents, and other proprietary rights that the business owns & holds.
Ensure that these IP rights are properly transferred and that they are not subject to any disputes or encumbrances. Trademarks, in particular, are vital as they are often integral to the brand identity and marketing efforts of an e-commerce company. Imagine buying an online boutique store and finding out later that it has trademark issues. You will then have to pay for legal costs to win the trademark dispute, or, worse, you will need to redo all the branding & marketing efforts if you lose the case.
Before signing the sale contract, work with your commercial lawyer to verify if the IP and digital assets will be included in the sale and how they will be transferred to you. This list of assets and IP should be outlined in the Sale of Business Agreement. You can also engage your business lawyer to draft a separate IP Assignment Deed, which specifically stipulates the details regarding the transfer of Intellectual Property.
Privacy Act Compliance
The Privacy Act 1998 is another important consideration when buying an existing online business. It applies to organisations and small businesses that handle personal (including health) information and have an annual turnover of more than $3 million. The Privacy Act holds them legally responsible for protecting customers' personal information. This includes taking reasonable steps to safeguard information from theft, misuse, interference, loss, unauthorised access, modification, and disclosure.
With regard to the Privacy Act 1998, here are some of the most essential questions to ask when buying an online business:
● Is the online business handling personal information? How about health information?
● Will you need a privacy policy for this online business? Does the e-commerce company already have it in place?
● Does the company have a data breach response plan, and is it compliant with the rules of the Office of the Australian Information Commissioner?
As the potential buyer, you must ensure that the business has robust cybersecurity measures to secure the online shop and protect it against threats such as data breaches & identity theft. This is vital for protecting the business and its customers and complying with legal requirements related to data protection.
PCI-DSS Compliance
Organisations, including small business, are required to ensure their ecommerce platform is compliant with the Payment Card Industry Data Security Standard (PCI-DSS). You will need to consider whether the business has satisfactory procedures in place for accepting and processing payment cards.
Legal Matters Related to Online Marketing & Advertising
It is without question that marketing and advertising can drive the growth and success of online businesses. However, these activities are governed by a set of legal considerations in Australia to ensure fairness, transparency, and consumer protection. Here are some key legal matters you should look at:
● Misleading or Deceptive Conduct
One of the primary legal issues in e-commerce marketing and advertising is the prohibition against misleading or deceptive conduct. This includes any form of advertising that could mislead or deceive the consumer in any way. The law aims to maintain honesty and integrity in business communications, ensuring that digital advertisements accurately represent the products or services offered.
● Unfair Contract Terms
When consumers engage with e-commerce platforms, they often agree to terms and conditions that are set by the business. These terms must be fair and transparent. Be aware that the law protects consumers from terms that would create a significant unfairness in their rights and obligations under the contract.
● Compliance with Advertising Standards
E-commerce businesses must adhere to advertising standards and regulations of the Australian Competition and Consumer Commission. These standards are designed to ensure that advertising content, including social media promotions, is appropriate, not offensive, and does not exploit vulnerable consumers.
Transfer of Ownership and Contracts & Performing Due Diligence
The transfer of ownership of an online business involves various contracts and legal documents. Engage a seasoned business lawyer to review all existing contracts, including supplier agreements, customer terms and conditions, and any other legal agreements that the business is a party to. As the potential company buyer, you must understand the implications of these contracts and ensure that they can be transferred or renegotiated as necessary.
Conducting thorough due diligence is also essential when purchasing an online business. This involves reviewing financial records, assessing the value of the business, understanding the operational processes, and ensuring that all legal obligations are met. So, besides hiring a commercial lawyer, you should also engage with professionals, such as business brokers and accountants, who can assist in evaluating the different aspects of the e-commerce company you plan to buy.
Engage with Bradley & Bray Lawyers Today
In conclusion, buying an online business in Australia requires careful consideration of several legal aspects. These include ensuring the proper transfer of intellectual property, compliance with Australian regulations, adherence to privacy laws, conducting due diligence, and managing the transfer of ownership and contracts. It is recommended to seek legal advice to navigate these complexities carefully and ensure the acquisition is legally sound and the investment is protected.
Looking for legal help on the Sunshine Coast? Our commercial lawyers on the Sunshine Coast are ready to guide you through your online business acquisition. Contact our Bradley & Bray lawyers today to schedule an initial consultation.
Disclaimer: This article is general in nature and does not constitute legal advice. If you require legal advice in relation to your personal circumstances, you must formally engage our firm, or another firm to provide legal advice in relation to your matter. Bradley & Bray lawyers take no responsibility for any use of the information provided in this article.
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