Purchasing an online business is a big step, and whilst online businesses may be easier to function from an operational perspective, it is still crucial that you are aware of your legal obligations and risks when you own or manage one.
This article explains the key considerations when you own an online business, whether it be Software as a Service (SAAS), online learning, product-based or more.
Trademarks and Intellectual Property (IP)
Regardless of the business type, Intellectual Property (IP) contributes significantly to any business value. IP relates to an online business trademarks, registered designs and creative work such as video content, software, blogs, images and brochures to name a few.
Another form of IP is trade secrets. This includes patents, recipes for specific foods or beverages and processes.
If you are purchasing or selling an e-commerce business, you will need to clarify with the seller who owns the IP for the online business in question. Often IP is owned by the creator, and the online business may only have a right to use the IP and not a right to sell it.
Typically, a list of assets and IP that are going to be transferred will be outlined in the Sale of Business Agreement or through a separate IP Assignment Deed that deals explicitly with the transfer of IP.
Physical Stock of the Business
Most online stores will not manufacture their stock but instead obtain stock from a supplier. Therefore when purchasing an e-commerce business, you will need to ensure that your sale contract includes any stock as an asset that will be transferred to you.
The sale contract should also require the supply agreements the seller has regarding their stock to be transferred to you as part of the sale. Depending on the terms of the supply agreements, you may need to obtain the supplier’s consent. If you are preparing to sell an e-commerce business, spending time now ensuring you have solid supplier agreements in place will make your business more attractive.
Software and Technology
If the online business you are purchasing has unique software or online tools and technologies, it is essential to consider who created and owns the code for the software? Is it the business owner or a third-party developer?
If the current business owner doesn’t have the rights to transfer the ownership to you, you will need to contact the third-party developers to ensure you can use the software without infringing on other parties’ IP.
Client Information and Privacy Considerations
If a customer database exists, you will need to ensure that you obtain the database as part of the sale of the business. Doing so will enable you to continue engaging with their existing clients.
There are a number of privacy requirements that need to be complied with during the sale of a business per the Australian Privacy Principles (APP) or international privacy laws. Permission from the customers to transfer their personal information to you, the buyer, will not be needed if you are purchasing the business as a going concern and will be using the customer information in the same way that the seller has.
Purchasing or selling an online business can seem gruelling when first starting out, at Clearpoint Legal, we can help you through the buying or selling process to ensure that you are legally protected and aren’t faced with any ‘legal landmines’. Book a call with our team today to find out more about our service.
