Starting a new business can be a daunting time. This guide lists 6 legal considerations you should consider when launching a start-up.
The business structure you choose each has their own associated risks. For each structure you must apply for an Australian Business Number (ABN) online through the Australian Business Register for free. The three main structures are:
This can be considered one of the most cost-effective ways to set up a business if you will be the only person running the business. As a sole trader you will be personally liable for the debts of the business.
If you are going into business with someone else, a partnership structure will allow you to jointly operate the business. Similar to sole traders, you will both be personally liable for the debts and liabilities of the business. Since you are in business together, you will need a partnership agreement to define your relationship, roles, responsibilities, and obligations.
A company provides the most protections from personal liability. When setting up a company, there is a requirement to provide information of the shareholders and directors of the company to ASIC. Once the Company is established and unlike sole traders and partnerships, the Company will be a separate legal entity from the directors, meaning the company is liable for its own debts. Either an individual or a group may establish a company making it a popular choice for start-ups and new businesses where this type of structure and protection is advantageous.
If you choose to use the company structure, you and the other people will need to decide who will be the directors, secretary and shareholders and sign consents to be appointed these positions. Lawyers can help you draft a shareholders agreement to accurately reflect the agreement you and your business parties reach.
Most companies will be registered as proprietary limited but if you are a not for profit you may want to consider a company limited by guarantee. Lawyers frequently create constitutions for each of these company structures and register them with ASIC on your behalf to streamline the start-up process.
Once a company is registered, they will be required to keep a company register. This document includes the constitution, consents and registers of current officeholders and members. Again, your law firm can put this document together for you.
Contracts: employees and suppliers
As your business grows, you may require staff. When hiring employees, ensure you have checked the relevant award to know you are correctly paying your employees. Further requirements include superannuation and pay as you go instalments (PAYG). Each of these should be outlined in the employment contract before the employee begins working for you.
Relationships with contractors may be more appropriate for your business. Contracts should also be prepared in this scenario and cover payment, hours and who the work they produce ultimately belongs to.
Almost all businesses will require some contracts, whether with buyers or suppliers. Lawyers can help you draft terms and conditions regarding things like payment and refunds. While an additional upfront cost, these contracts can protect you and your business from future loss.
Trademarks and Intellectual Property
We recommend you register your business name, logo and slogan as trademarks. Once they have been registered they are part of a searchable database that shows that particular graphic is owned by you or your company. This means you have the sole ability to use those words or images and can enforce intellectual property rights against anyone else pretending to be you.
As a sole trader you can use your personal tax file number (TFN) however companies and partnerships must apply for their own separate TFN. It is best to do this while applying for an ABN.
The threshold for GST is revenue of more than $75,000 (or $150,000 for non-profits). At this point you will need to register for GST through the ATO.
The consequence of not registering for GST when you should have is you will be required to backpay the GST on sales that you did not include GST in previously.
Workers’ compensation insurance is compulsory if you have employees. Some industries require businesses to hold a certain insurance cover. Public Liability insurance may be advisable, if not mandatory, if your business is interacting with clients. Other insurance you may want to look into broadly include:
- Loss of income insurance for example business interruption which could cover you if the property is damaged.
- Stock, products and asset insurance covers things like building and contents and deuteriation of stock.
- Professional indemnity insurance includes providing negligent advice or malpractice.
Taking out insurance on key assets is the best way to protect yourself from loss.
In addition to insurance, before beginning operations, check the regulations relevant to your industry. For example, if you run a small food business selling cakes, you will still require a food handling certificate. If you sell alcohol you will require your business and employees to follow responsible service of alcohol laws. Local council regulations may also apply zoning rules or require permits. Industry bodies and councils can inform you which regulations you will need to follow.
The beginning of any new business or start-up is an exciting time. It is also the best time to ensure you and your business are compliant with regulations and protected as best as you can be from risks. Before opening the business, determine your business structure and the relationship between everyone involved in the start-up. Important people to speak with include solicitors and accountants.
(Assisted by; Jacqueline Healy)
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