How to Set Up an App Business. Unfortunately too many people dive straight in – designing, developing and distributing their App – only to find out later they’ve missed a vital step and their precious App business is in jeopardy.
It could be any number of things, we’ve seen them all:
- They don’t own their App code
- A potential investor has “stolen” their great idea
- An App customer sues for losses suffered using their App
- The App costs way more than expected or is never delivered, etc.
I’m sure you don’t want to make these mistakes. So let’s get started on the Legal123 guide to expertly setting up and structuring your App business.
1. You should probably run your App business through a ‘Pty Ltd’ company structure
It’s important to get the business structure right from the beginning. Changing mid-stream can be costly and create extra headaches you don’t need.
We’ve written before about the advantages of using a ‘Pty Ltd’ structure for online businesses. And App businesses are no different. ‘Pty Ltd’ structures:
- Provide the most protection for personal risk, particularly if you are going into business with another person
- May be the easiest way to bring on investors, raise financing or sell the App business down the road
- Give you flexibility in whether to personally own the App and lease or license the App back to the company, and
- Allow you to minimize taxes with deducting all business expenses and structuring payments to owners of the App
But ‘Pty Ltd’ isn’t the only option. You might also consider sole trader, partnership or trust. Before deciding you should really check with your lawyer and accountant. Plus familiarize yourself with the setup and ongoing costs of lodging accountants, ASIC filings, BAS returns, etc.
2. Use a Confidentiality Agreement when discussing your App ideas
You need to protect your App concept and technical details from being stolen – it’s your trade secret and valuable, maybe very valuable.
Before your start any discussions – with partners, investors, App developers, marketers, etc. – get them to agree to keep your discussions confidential and ask them to sign a Confidentiality Agreement.
The Confidentiality Agreement doesn’t need to become a stumbling block. Use a short agreement – email or 1-pager – for preliminary discussions. And as discussions progress, particularly with App developers who need to understand the technical details of your App, ask them to sign a more detailed and comprehensive agreement.
3. The costs of App development can vary widely, so know what you’re getting
A basic App can cost $1,000. More complex Apps can cost between $3,000 and $10,000. You might get an App development quote of $5,000 from an Australian App developer – and the same thing might cost you $2,000 from an Indian or Chinese App developer. And who’s to know what the difference is (unless you’re an experienced App coder)?
As with everything, you usually get what you pay for. So make sure you know what App functionality you need, then choose wisely. Here’s a checklist of items to consider when reviewing and deciding on different App developers:
- Is their portfolio extensive and does it include Apps similar to yours?
- Do they have the experience to code the functionality or effects you require?
- Do you like the look and feel of the Apps they code?
- Do they limit permissions and respect your legal requirement for user Privacy?
- Are their Apps available in the Apple and Google App stores?
- Will they submit your App to the Apple and Google App stores?
- Do they have priority status that fast-tracks listing on the stores?
- Is their fee 100% fixed, fixed with over-run riders or based on hours?
- Do they offer a warranty and guarantee the App will work successfully?
- How fast are their turnaround and bug-fix times?
4. Have a contract with your App developer and ensure you own the code
This is probably the most over-looked detail. It is critical that you own the code for your App. Without it, your business is worthless – and you might become hostage to your App developer.
We’ve seen this – with overseas App developers charging outrageous monthly code maintenance fees and threatening to keep the code and App distribution accounts if you don’t pay.
You need to have your developer give the open App code to you, sign over ownership and assign the Copyright to you. You will need this to have any other App developer help with updates, changes and enhancements. This requirement should be included in the App Developer Contract you have with them.
If you do not own the code, it will be difficult to get investor funding or claim any intellectual property rights. Worse, the App developer could use the code, sell it or develop a similar version for someone else and then you’ll have no right to sell your App or register it’s intellectual property.
In addition, your App Developer Contract should include:
- Full App specification and functionality
- Permissions the App accesses and Privacy data used
- Delivery timing and response time for bug fixes
- Payment schedule and dispute resolution process, and
- Protection of your IP and confidentiality of your idea
Be aware, if you use an overseas App developer and things do not work out, you will find it more difficult to enforce your legal agreement with them.
5. At a minimum, register your App trademark with IP Australia
Once you’ve decided to go ahead with your App concept, you should consider protecting your Intellectual Property (“IP”). There are 4 ways in which you can do this.
Copyright. Copyright protects the source code, artwork, design, text and other content of your App. Copyright is automatic and registration is not required. You might add a Copyright symbol to your App, but it’s not necessary.
The problem with Copyright and App code is that it doesn’t offer much protection. For example, source code can easily be added to or altered enough so that it looks new and may be considered “unique” and not infringing on your Copyright.
Trademark. Trademarking protects your App’s name and logo or symbol. Legal123 can help you do your searches to ensure your planned name and a similar logo are not taken and then register your trademark so your App is protected.
Australian Patent. A patent protects the unique functionality of your invention. You should consider patent registration protection if your App has some unique functionality, rather than relying on Copyright protection. Patent registration protects innovative products or processes from being copied by others. This is more costly and usually a longer process, so you need to start it early and before your App is in the public domain.
International Patents. An Australian patent provides protection only within Australia. IP protection is country specific, so you’ll have to register a patent in each country you wish to be protected in. However, the process has been simplified.
You can have your patent filed by lodging separate patent applications in each country you plan to market and sell your App in. This can be a cost effective method of protection when you are only filing in a few countries. Alternatively, one single international application can be filed under the Patent Cooperation Treaty, which is administered by the World Intellectual Property Organisation.
This means you are able to apply to over 180 countries with one application. Each country will still have to examine your application separately, but you can save significant time and costs if you choose this path rather than doing so individually for several countries. For more information on this check out IP Australia.
6. Apple and Google App Store legals don’t protect you! You need your own
Promoting your App in the Apple and Google App Stores is a given. But what do the App Store legals, that you agree to when registering, cover you for? Nothing!
You may be under the impression that the Terms & Conditions in the Apple and Google stores protect you and your App. But this is wrong. They only protect Apple and Google from you and your customers suing them. They do not protect you or your App business from being sued by your customers or others that may download your App and suffer losses.
You need your own App legals:
App Disclaimer. You need a Disclaimer to cover you if customers or App users try to sue you. A Disclaimer states that you are not responsible for any issues associated with the download or use of your App. This includes corrupting data or programs when using your App and getting agreement with the permissions that are needed for your App to function.
App End User License Agreement (EULA). A EULA states exactly how you are licensing the App to End Users and purchasers. They don’t own your software when they buy your App, so you have to ensure you make it clear they cannot modify or use the App in any way that is not within your EULA terms.
Both the Apple and Google App Stores make you agree to a standard EULA. Recently the Apple App Store has allowed App marketers to upload their own EULA. We recommend Australian App marketers use their own EULA, as the standard Apple EULA uses Californian law and it’s not clear how far you are protected under Australian law. In the event of any claim by a user anywhere in the world, you would be required to engage Californian lawyers and may have to travel to California to settle the legal dispute.
7. And you need to post your App legals so they are visible BEFORE download
So now you’re armed with your App legals where and how do you post them?
Downloading from the App stores. All Terms should be able to be read before the App is downloaded. Often this is done with a link when the Disclaimer pops up at the point of App download. It’s difficult to legally rely on Terms that a user cannot see or agree to until after they download the App.
If your App is something like a dating, finance or fitness App, you need to be more careful with potential user claims. Cover yourself by having users “actively agree” to your Disclaimer and Terms. But if your App is something like a simple game, then you don’t necessarily need “active agreement” by users. Just having the Terms available to users is likely enough.
We hope you found this guide to starting an App business in Australia helpful.