Starting a new business venture can be a daunting prospect especially for first time entrepreneurs. There are a large number of important factors to consider, both legal and financial.
Marino Law offers a suite of legal services to simplify the legal side to the process and guide entrepreneurs to help ensure that they have properly addressed all the essential legal considerations.
Below we have summarised what we consider to be the top five most important legal considerations when starting a new business.
The structure that your business adopts is a key consideration when first starting a new business venture. It is important to get it right from the beginning, failing which re-structuring costs, such as paying stamp duty on the market value of your business when transferring to a new structure, may prove very costly.
Choosing the right structure involves considering legal advice centred on asset protection along with financial advice centred on taxation and other financial matters. At Marino Law, we can link new business owners with the most highly qualified and experienced accountants and financial advisors to ensure you receive the advice that you require.
There are a number of different legal structures that each offer different advantages, depending on the nature and scope of a business venture.
The most simple and straightforward structure is that of a sole trader. A sole trader is simply an individual that operates a business under his or her own name. Income from the business forms part of the individual’s regular taxable income and his or her personal assets are available to creditors in the case of a dispute or insolvency. In limited cases, such a model may benefit someone who does not own a home or any other significant asset and whose business is not anticipated to generate a large volume of revenue. In most cases, however this model is not recommended given that it puts business owners’ personal assets at risk and can lead to business income being taxed at the top personal income tax bracket, which far exceeds the corporate tax rate.
A corporate structure on the other hand provides for the corporate veil, which acts to protect or ‘veil’ directors’ and shareholders’ personal assets from creditors. The basis for the corporate veil is that a company is considered to be a separate legal personality from its owners, capable of suing and being sued. In the event of a dispute or insolvency, creditors have access to the company’s assets only. From a taxation point of view, revenue is taxed at a flat rate, which can offer significant savings when profits are reinvested into the company. Where profits are paid out to shareholders in the form of a dividend, those payments form part of a shareholder’s personal income.
The third most common structure is a trust, which can be in the form of a discretionary trust, fixed unit trust or hybrid trust. With the establishment of a corporate trustee, a trust provides for asset protection in the same way as a corporate structure and may allow for certain capital gains tax advantages. Profits from the business venture can also be ‘sprinkled’ to a number of beneficiaries to minimise overall tax paid. A trust can also act as a shareholder to a corporate structure allowing for the same ability when distributing dividends.
Beyond the trading entity’s business structure, there are also further asset protection considerations such as quarantining labour, intellectual property and expensive equipment in separate corporate or trust structures and licensing the use thereof to a primary trading entity. Such a network strategy if properly established has the effect of denying creditors of a trading entity access to such assets in the event of a law suit or insolvency. It is important however that such structures are properly set up with licence agreements and, where required, PPS leases under the Personal Property Securities Act 2009 (Cth).
At Marino Law, we are experts in the field of asset protection and legal structuring and are available to assist small and large businesses alike to properly structure a new business venture or to help re-structure an existing business so that it can operate at maximum efficiency.
- Partnership Agreement
The next most important consideration when starting a business, where the undertaking involves more than one person in partnership, is to ensure that whatever your business model is, that you have a proper partnership agreement drafted and entered into between the parties. Often business partners go into a new venture with ‘rose coloured glasses’ excited at the potential of their new enterprise and comforted by a strong personal relationship with a business partner. However, often personal bonds and relationships sour over time and disputes may arise. Without a partnership agreement in place, these disputes very often need to be resolved by the Court and in the case of deadlock between business owners, the most common remedy is to order the business be wound up and liquidated, which can have a devastating effect on an otherwise successful business.
The type of partnership agreement that is appropriate will depend on your business structure and will usually take the form of a shareholders agreement (for a corporate structure), a unit holders agreement (for a fixed unit trust structure) or a partnership agreement (for individuals or other entities that are in partnership together).
At Marino Law, we can prepare your partnership agreement or assist you to review one prepared by another practitioner and ensure in either case that your legal position is protected against a range of matters from dispute resolution to avoiding any prospect of share dilution to restraint of trade matters along with a raft of other legal considerations such as ensuring that you have a first right of refusal if your partner decides to ‘sell out’ and drag along and tag along rights to ensure that you do not miss out on a potentially lucrative sale of the business.
- Considering your legal obligations
Depending on the nature of your business, you may require certain licences and permits before you can legally commence operations. For example, you may require an Australian Credit Licence and/or an Australian Financial Services Licence if you operate in the financial sector or if you provide goods or services to your customers on credit. In the case of a retail business, you will require advertising device licences for any signage along with a food licence where applicable. Workplace health and safety matters to a varying degree affect all businesses and need to be built into your business model.
In the event that you intend on franchising or licensing your business model, there are further considerations that need to be addressed under the Franchising Code of Conduct, the Fair Work Act 2009 (Cth) and certain other legislation.
At Marino Law, we can guide you through the sometimes-complex web of regulations and laws and advise you what your business will require to operate legally in Australia.
- Trade Mark Protection
Some erroneously believe that when registering a business name, you own the name however that is not the case. The only way to own your business’ trading name is to register it as a trade mark in the jurisdictions that you intend to operate your business.
To avoid having to re-brand your business at a later time, which can come at a very high cost in terms of losing established brand recognition, it is essential to undertake due diligence on the trade mark registers in the relevant jurisdictions in order to ensure firstly, that your proposed business name does not infringe on an existing registered trade mark potentially resulting in a costly law suit and secondly, to ensure that you can achieve trade mark registration of your business name. The process to achieve trade mark registration takes at least seven and a half months, although you achieve provisional protection from the time of lodgement, and as such it is important to commence this process at the outset of your business venture.
At Marino Law, we can undertake due diligence on all the relevant trade mark databases across the globe and advise you as to your prospects of achieving trade mark registration for your proposed business name as well as detail which classes of goods or services you need to seek registration under to obtain maximum protection against infringement. We can also act in your trade mark application including advising on and overcoming examination reports and any oppositions or applications to remove for non-use.
- Employment Matters
How your workforce will operate is an essential matter to consider when starting a new business. Irrespective of the nature of your business, you will require comprehensive advice on your award and other obligations under the Fair Work Act 2009 (Cth), employment contracts drawn up and potentially advice surrounding negotiating and entering into an enterprise agreement with your employees.
Restraint of trade matters whereby senior employees are restricted from competing with your business for a period of time after the employment relationship has come to an end is another essential consideration that is best dealt with at the onset of the employer-employee relationship when the employer is usually in the strongest negotiating position.
Further, as mentioned earlier in this article, you may wish to establish a separate labour hire entity to quarantine any employment-related claims. There are strict requirements however when establishing such an entity including the need for a labour hire agreement and demonstrating that the entity is profitable in its own right.
We are experts in all employment related matters at Marino Law and can assist new business owners to advise on their obligations as well as preparing all relevant legal documents to properly document the intended relationship between you as the employer and your employees including employment contracts, policy documents, individual flexibility agreements, enterprise agreements, labour hire agreements and more.
If you are starting or considering starting a new business, contact our office in order to make an appointment with one of our highly qualified business law lawyers, who will ensure that you are on the right track and that all legal matters have been fully and properly addressed so that you can focus on making your new business as successful as possible.