Branding and Intellectual Property: What Risks are Associated with Buying or Selling your Business
Selling a business requires more than the passing on of physical assets. You must consider the business branding, any intellectual property or trade marks, reputation and social media accounts.
Providing access to social media and online accounts is vital in a business sale. These tools allow a business to reinforce their brand and reputation, engage with clients and promote their products or services. Access to social media and online accounts should be accounted for in a business sale contract, especially if the purchaser intends on running the business with the same name and branding.
Many people do not realise is that you do not own your social media account. When signing up, you are given a contractual right to use the account, but this does not mean it is part of your possession. This means when you sell your business, you cannot sell your social media account, but you can pass on the login details. With that being said, there are legal implications a seller must consider when transferring social media accounts.
Facebook, for example, states you must receive written permission from the site in order to transfer your account, rights or obligations to anyone else. Youtube includes similar terms. This means not only do you need to include a provision of this in the business sale contract, but you first must receive approval from sites such as Facebook before legally transferring the page. Breaches of these terms in the past have resulted in Facebook deactivating accounts.
A trade mark is a legal tool for distinguishing logos, brands, words or images from those of another business. This means the owner has the exclusive rights to commercially use, license or sell the mark. If you register a trade mark in Australia, no one else is allowed to use your mark within the class of goods or services in Australia. A business owner can apply to IP Australia to have their branding trade marked. This means when selling the business, this trademark should be passed on.
If you do not register your trademark, someone else may take the right to it from you. This could mean you could face a difficult legal battle to be able to use the name or logo you have been using throughout the entire business history, or you could be infringing on someone else’s trade mark. Alternatively, someone else may oppose the registration of your trade mark due to their prior use. If you fail to register your trademark and it becomes trade marked by someone else, this may result in legal implications.
Copyright is a legal right given to a creator to print or publish material for a certain amount of years. This enables the owners to manage how their content can be used. Copyright law can protect computer programs, textual material, logos, artistic work and other creative works.
It is important to establish who owns the copyright in your due diligence planning as you may need to seek the right from someone else. This is because the artist of a logo, brand or design may own the copyright but has allowed the business to use it. Similarly, a service provider may own the rights to the business website. In this case, you will not be seeking the right to use the copyright from the business owner, but a third party.
Transfer of business name
When selling a business, it is important to ensure you legally own the name. A common misconception is that a ‘business name’ and ‘company name’ are the same thing.
A company name is separate from a business name, as it is its own legal entity registered with ASIC. For private companies, the company name must include the legal terms ‘Pty’ and ‘Ltd’. Companies can choose to register a business name if they want to use a separate business name to trade, or need to transfer the name as part of a business sale. Before purchasing a business, you should check that the vendor owns any business names which they have represented will be included in the sale of a business.
A purchaser should incorporate a business name, trade mark and copyright searches into their due diligence planning. This could involve ensuring the seller of the business is the owner of the business name, copyright or trade mark, establishing who does own the copyright if it is not the owner and, should there be no copyright or trade mark protection in place, seeing if anyone else in a competing business has similar branding.
Buying a business can be risky, especially if people are unaware of what branding rights are to be included in the sale contract. Social media, business names, trade marks and copyright are just as important in the sale contract as physical material so it is important this is accounted for correctly. If you are considering selling or purchasing a business, you should always perform adequate due diligence and seek legal advice.