Issues to Consider
Setting up your own business is an important
project both personally, legally and emotionally.
There is much to
do, learn and make decisions about. The structure of your business,
and the cost of establishing it, are vital. It is preferable that
you obtain advice from your professional advisers (lawyer accountant
and financial adviser) banker and others before taking those first
steps. They can give you invaluable assistance in your new venture
and their advice may even save you money in the future. This article
sets out some of the issues to consider in establishing your business.
A business can be
acquired by purchasing an existing business or setting one up yourself.
You need to balance the cost of acquiring a business (and what you
get for your money) with the cost of starting 'from scratch'.
Your business can
be operated using various structures. The one you choose will depend
on your needs and the cost of each option.
This is where you personally own and operate your business. Therefore,
your income and expenses are dealt with as part of your personal tax
position. You are personally responsible and liable for the business
and it's debts. Any net profit belongs to you.
You can operate a business in partnership with one or more others.
You and your partners are all personally liable for all debts and
responsibilities of the business. If one partner will not or cannot
pay his share of a partnership cost then the other partners must do
so and then look to him for his share. A partnership arrangement exposes
your own personal assets to any partnership liabilities.
The partnership arrangement
(as with any business arrangement) should be documented (see below).
A company can be operated by you alone or with other parties (shareholder(s)).
The law now allows a sole trader to operate his business using a company
where he is the only director, secretary and shareholder of the company.
An existing company can be converted to such a structure or a new
company can be incorporated with this structure. There are a number
of issues relevant to such companies which should be carefully considered
before this option is taken.
business arrangement should be detailed in writing so the partners
or shareholders know what is expected of them including what they
must do, what money they must pay, what happens if the business requires
money to operate, borrowing money, expanding the business, selling
all or part of the business, bringing in new partners or shareholders
relationships are like marriages. The successful ones are operated
by good communication, having good systems and procedures in place
and properly documented, ensuring that documents between the company
and it's shareholders, directors and employees are in place, keeping
company records up to date and filed as necessary including with the
Australian Taxation Office and the Australian Securities and Investments
Commission, regularly reviewing policies and procedures and business
There are different
types of Trusts including those set up under Wills. Those most likely
to affect a business are:
(Family) Trust - this is usually established for the benefit of
family and it's members. It allows the Trustee discretion as to the
distribution of both income and capital, to beneficiaries who can
be both specified and general. General beneficiaries are usually related
to the specified beneficiaries.
Trust - this is usually established where a business or joint
venture is for the benefit of various parties of business partners
rather than family members. It has flexibility in that the unit holders
entitled to the benefit of the trust's assets can be altered. A unit
holder holds units in the trust which can be sold in a manner similar
to shares in a company. Income and capital are distributed to unit
holders in accordance with the number of units they hold.
a business, it is important to ensure that you are aware of any industry
and general requirements affecting your business. These include operating
a safe work place, payments to employees, holding appropriate licences.
Obviously different industries will have different requirements. Appropriate
industry bodies can be helpful in keeping you informed of what is
is important to evidence the practices, procedures and conduct of
your business. It also governs relationships of parties involved in
the business (employees, directors, shareholders, suppliers, contractors,
customers etc). If these are clear, negotiated and communicated, the
risk of difficulties arising is substantially reduced.
Any material which
must be filed with the Australian Securities and Investment Commission
(ASIC) and (in the case of Public Companies) the Australian Stock
Exchange should also be understood and attended to.
records must be kept for the company. A lender is likely to require
that information on an ongoing basis where your business has borrowed
Tax returns must
be filed with the Australian Taxation Office on an annual basis. If
you operate as a company, an Annual Return must be filed with ASIC.
If you are registered for GST then Business Activity Statements (BAS)
must be lodged monthly or quarterly.
Premises - you may operate from premises that you own or lease.
If leased, then an appropriate lease with your landlord should be
in place so that your rights and obligations are clearly understood.
Funding - where your business borrows funds from a lender,
that lender will require loan documentation to be put in place and
will also require a regular review of your financial position and
information in the context of that funding.
Personnel - when personnel are engaged, you should consider whether they are
employees or contractors. This affects your rights and obligations
concerning payment of wages and salary, other employee entitlements,
workcover, superannuation, taxation etc. Such arrangements should
be properly documented and understood by you and your personnel.
Insurance – there are many types of insurance which you may need or should have in relation to your business. These include building, contents, stock, income protection, business expenses protection, trauma, life, public liability, product liability and professional indemnity insurance
important to obtain legal financial and accounting advice on the structure
and implications of starting up a business whether you are buying
an existing business or setting one up.
If you would like
further information on the rights and obligations of directors and
officers, basic requirements for operating your business, single director/shareholder
companies, intellectual property or buying and selling a business,
we can provide you with articles on these topics.
Personal planning is also important is properly setting up a business. This includes making a will, having powers of attorney (enduring (financial) and medical), having appropriate superannuation, income protection insurance, business expenses protection, workcover, and considering future issues like requirements for working capital, equity, expansion or sale of the business. If you would like an article on preparation of Wills and or Powers of Attorney , please let us know.
We are happy to work with you and your
other professional advisers to have your business and personal matters
proceed as smoothly as possible.
This article is general in nature
and for information only. It should not be acted upon without obtaining
specific legal advice.
©Anne Hodgson & Co Lawyers,
Tel: 03 9578 7444 Fax: 03 8677 2962 Email: firstname.lastname@example.org