Bayside BEC  - Small Business Legal Guide

Understanding your obligations is paramount to the survival and growth of your business. There are a number of basic areas that a small business must get right.  Below is a short guide to starting you on your journey of establishing your business with a legal view in mind:

 
Business Structure

There are three ways you can set up your business from a legal perspective.  You can be a sole trader, a company or a partnership.  there are benefits and risks with each type of business structure so you should consult your lawyer and your accountant to discuss what is appropriate in your situation.  IN short, the following is a brief summary:

Sole trader

A sole trader is where a person trading as the individual is legally responsible for all aspects of the business. This includes any debts and losses, which can’t be shared with others. This is the simplest and relatively inexpensive business structure.

Advantages:

  • You are your own boss and are responsible for all decisions

  • All profits belong to you

  • Inexpensive business structure to establish and maintain

  • Losses from the business can be offset against any other income or future earnings

 

Disadvantages

  • You alone have responsibility for the business. Holidays become a luxury you may not be able to afford simply because nobody else has the expertise to run your business efficiently in your absence

  • You are personally liable for all business debts, which means your assets (including your home), may be at risk

  • You continue to pay tax at the personal rate

Partnership

What is a Partnership?

Partnership enables a group of people to contribute their time, talents and money towards the business. In return, they share the responsibilities and profits. In the absence of a formal partnership agreement, the law will assume that each partner has an equal share. All partners may be personally liable if the business incurs any debts.

If you are entering into a partnership it is a good idea to draw up a partnership agreement to ensure that all partners are clear on their rights and responsibilities.

A limited partnership is a variant of an ordinary partnership; whereby the liability of a partner contributing capital can be limited to the amount of financial contribution, provided that the person doesn’t take part in the management of the business.

Advantages:

  • Taxation obligations may be minimized, particularly where members of the same family are included in the partnership (But the ATO requires that all partners have real and effective control over partnership assets and liabilities)

  • Responsibility for running the business is shared.

  • The ability to raise finance for the business is enhanced.

 

Disadvantages:

  • Liability is unlimited. If a partner absconds or dies, the other partners are left with the liabilities.

  • If the partnership is dissolved or altered, difficulties may be experienced in obtaining an acceptable valuation or in raising capital to purchase a retiring partner’s share

 

Companies

How do I set up a company?

There are a number of ways to set up a company; the easiest way is to buy what is known as a shelf company, and then change its name if necessary. This can be done through an accountant or solicitor or companies that specialize in selling shelf companies. You can also register a company yourself through ASIC directly.

What is a “Proprietary Limited” Company?

It is a registered private company. At least one person is required to form a “Proprietary Limited” company who must then fill the role of both Director and Secretary. Companies are required to lodge annual returns each year. A “Proprietary Limited” company cannot invite the public to invest or deposit money with it. The liabilities of the shareholders are limited to the share capital they have subscribed to and any debts they may have personally guaranteed.

What is a “Limited” Company?

A Limited company is a public company consisting of at least five people who fill the roles of directors and secretary. Limited companies also have shareholders and can raise capital by offering shares to the public by issuing a prospectus.

Can I set up a company in Australia if I live overseas?
Yes, but at least one of the directors of the company or the company secretary needs to live in Australia. If it is a public company, then at least two of the directors need to live in Australia.

Advantages:

  • The liabilities of shareholders are limited to the share capital they have subscribed and any debts they may have personally guaranteed

  • It is easier to spread ownership of the company

  • The company is a separate legal entity and need not be wound up in the event of the death of the directors or shareholders

  • Under the imputation system of company taxation, company tax gives rise to tax credits, which allows the company to pass on tax benefits when paying franked dividends to shareholders

  • Can issue new shares to raise capital

 

Disadvantages:

  • Establishment costs are high, so are administrative and compliance costs

  • Lenders will often seek personal guarantees from directors before making a loan to the company

  • Losses cannot be offset against other income of the owners

  • Directors have serious and substantial obligations under company law.

​Business Name Registration and ABN

 

Business Name

​A Business Name is a name under which a sole proprietor, partnership or company may choose to trade. All trading names unless registered under other legislation (e.g. company names under the Corporations Law), must be registered as a Business Name.

How do I Register a Business Name?

To run a business in NSW you must register your business name if it is being conducted under a name other than that of the owner. Business names are registered with ASIC.

How much does it cost and how long does it last?

It is a relatively low cost.  You can access further information on fees and payment methods from ASIC.

Can I trade without registering a business name? 

If a business is being run under any name other than that of the owner's name, the name (surname and given names and/or initials) must be registered with the Department of Fair Trading. For example, if words are added to a name, it must be registered (e.g. Bill Brown & Brothers).

Can any name be used for a business?

No. There are some names you will not be allowed to register. These include names that are:

  • Already registered

  • Misleading or offensive

  • The same or substantially similar to a registered business or company name (in state of registration) and where the business is similar

  • Indicating that a business is a charity or non-profit organization. You may not use words such as Associate, Club, League, Society or Institute unless you are constituted as one of these.

Australian Business Number (ABN)

Your ABN is your unique identifier as a business and you cannot legally trade without registering for an ABN. The ABN helps other businesses and customers verify that you are a legitimate and registered business. It is an 11 digit number and you can apply online: ABN Application

Protecting Your Information (Intellectual Property)

​If your business has created intellectual property – something that sets you apart from competitors and which can give you a major advantage in the market - you will most likely need to protect it. The following is a brief guide to intellectual property and how it can be protected, however, it is recommended that you seek the advice of a professional in the IP field to determine what is best for your own situation. Please review our information on Intellectual Property which covers:

 

  • Insurance: an essential part of any business and sometimes a legislative requirement. There are various forms of insurance and the following are some areas that you would want to consult an insurance broker about and determine what insurances you will need to related to your business and your profession.

  • Public Liability Insurance: this is not a legal requirement for all businesses. However, if you have customers, suppliers or any other member of the public visiting your premises, it is recommended that you take out a policy of this nature. Public Liability Insurance will protect you from being sued for damages resulting from some type of accident occurring. Similarly, if you employ or contract staff, you would need extra insurance that covers any injuries resulting from work activities. This type of insurance is related to Work Cover.

  • Some specific types of businesses or professions will be required to have ongoing insurances. For example, real estate agents who operate a registered company require Indemnity Insurance which covers them for any issues relating to providing advice to consumers regarding the property market. Tradespeople are required to have public liability insurance as part of retaining their license.

​Customer, Employee and Contractor Agreements

Contracts are an essential part of any business. They cover the Terms and Conditions of selling services or goods or the agreements between employees of contractors. The following is a brief guide.  

Products and Services

  • Details of what it is you are selling whether it is a product or service.

  • Documenting your payment terms. COD, or payment after a number of days, e.g. 7 days.

  • A payment clause which covers what could arise if someone doesn't pay.  

  • What are the delivery timeframes for the products or services?

  • How long will the arrangement last and how would the buyer or the seller end the contract if required?

  • What type of guarantee or warranty are you offering with your services?  

Employees

Documenting the conditions in which you will employ a person, to establish the framework of the relationship. The areas that an agreement should cover are:

  • The details of the roles and responsibilities

  • How much the employee will be paid

  • Hours of work

  • Termination and disciplinary action.

  • The Award covers the employee, which describes the minimum conditions for an employee.

  • Confidentiality Agreements

Fair Work Ombudsman has extensive resources/templates to help you draft your employment agreement: Fair Work Ombudsman

 

Contractors

If your business does not need full or part-time employees and you require the services of a contractor, it is recommended to document a contractor or sub-contractor agreement which outlines what the services that the contractor will engage in, the payment schedule and ownership of IP and other variables such as a no-poaching clause and liabilities clause.

Legislation

It's not just about identifying what you want to do in business. It is essential to understand if there are laws governing that type of business in Australia and in the state that you live in. So, depending on the types of services and/or products you sell, you will need to identify the legislation and the government bodies that govern that legislation before you commence. Businesses such as real estate agents, tradespeople, professionals such as accountants/lawyers, food providers; publicans and businesses within the health industry - to name a few - all need to have specific licenses to operate.

You can contact the Bayside BEC and we can help you identify the appropriate government body to approach to identify the conditions and prerequisites required to obtain a license in the area you are targeting.

There are many legal requirements for commencing your business. The Bayside BEC is here to help navigate your way through the complexity of starting or growing your business.

 
 
 
 
 
 

Related Resources

 
 
Book your FREE 30 minute appointment today or contact us for more information 02 9316 5877
Book your FREE 30 minute appointment today or contact us for more information 02 9316 5877

Partnerships Spanning 30 Years

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