If you’re about to launch your new business, you will have already developed your business idea and mapped out how you want to operate your business. You may have even developed a unique business name. However, it’s also important to think about the legal considerations that will underpin your business, including registering a trade mark. This article will explain ten considerations you need to think about when starting your new business.
In Australia, most businesses will fall into one of three common business structures;
- sole trader;
- partnership; or
Each structure is different and you must consider the associated benefits, risks, liabilities and financial obligations of each.
If you choose this structure, you will operate your business as an individual. This is the simplest and cheapest business structure to set up and continue operating. All you need is an Australian Business Number (ABN) and a trading name. However, as a sole trader, you will be personally liable for the debts of the business. If you are going into business with another person, operating as a sole trader would not be appropriate.
In a partnership, two or more people operate a business together and share profits. This structure is a little more complex than a sole trader. It is important to recognise that both you and your business partners are both individually and jointly liable for the business’s debts and liabilities. When setting up your business as a partnership, you will also need a partnership agreement.
Companies can be operated by yourself as an individual or with a group of people. The company is a separate legal entity from yourself and the company will have directors and shareholders. This is the most complex structure and also the most expensive to set up and maintain. However, this structure reduces your personal liability as the company is liable for its own debts. This is the best structure to use if you would like investors to invest in your business and it is a popular choice for new businesses and startups.
Before you start trading in Australia under any of the above business structures you are required to apply for an ABN. An ABN is a unique identifier that allows government departments, other businesses and the general public verify who you are and that your business is legitimate.
To ensure that you are able to validly hold an ABN, you must satisfy the following conditions when applying. Your business must be:
- providing, or about to commence providing, products or services to your customers; or
- a registered Australian company.
You must ensure you keep your ABN details up to date.
Operating a business is difficult but working out your tax may be even harder. Depending on which business structure you have chosen, it is important to keep in mind the different taxation considerations and requirements of each. If you operate as a sole trader, you will use your own personal tax file number (TFN) and must lodge a tax return each year. However, partnerships and companies must apply for their own separate TFN and file their own tax returns. If you are operating one of these business structures, you will often apply for a TFN at the same time as applying for an ABN.
Additionally, if your business earns more than $75,000, you must be registered for GST. It is a good idea to have a trusted accountant assist you with your tax obligations.
Regardless of the business you operate, you will have equipment that is instrumental in running your business. Whether a computer is your only companion or you run a roving food truck, you will need to ensure that these are adequately protected. The best way to protect yourself is to take out business insurance on your vital equipment and incidental belongings. An insurance broker can give you guidance on the best insurance option for you, taking into consideration coverage and costs.
Specific Liability Insurance
Depending on the industry that you work in, you may also require specific liability insurances. Public liability insurance (PLI) is not a legal requirement for all businesses. However, if your business will be interacting with your customers, PLI is strongly recommended. Many trades, for example, will be required to hold ongoing PLI as part of the state-by-state licensing process.
If you engage employees or contractors, you also need to have your appropriate insurances in place in the event a team member is injured whilst working with you. There are state specific insurance schemes which you will need to be aware of if you are engaging team members.
Business Name Registration
Before registering your business name, it is important that it is:
- unique; and
- not already being used by another business.
You can check its availability by looking it up on:
- Australia Securities and Investment Commission’s (ASIC) website;
- Australian Trade Marks Register; and
Your next step is to register this new name with ASIC. This will be your legal trading name and the name your customers recognise. Your business name will be listed on ASIC and the Business Names Register which is a public register where people can search for relevant businesses.
Registering a business name does not, however, provide you with any intellectual property protection for the name.
Your business name, your style and your logo represent your business to your customers. This branding is known as your intellectual property. Intellectual property is an invaluable asset to your business, as your customers associate you and your successful business with your branding.
However, protecting all of your intellectual property can be difficult. It is strongly recommended that you apply for trade mark registration of your business name and your logo (if you have one). Trade mark registration means that you have the intellectual property ownership of your business name and can control the way it is used by your employees, customers and suppliers or distributors. You can also enforce your intellectual property rights against others who may misuse your name. Trade mark registrations are managed by the government agency, IP Australia, and you can search the public register to ensure your potential new name is not already registered.
Regardless of how you operate your business, you will require a contract in some form. If you are selling goods online, you will need a contract between yourself and your buyers setting out important aspects like refunds and returns. This is known as your terms and conditions. Similarly, if you are providing bookkeeping services, you will want to set out the expectations of deadlines, payments and dispute resolutions in your contract. This is known as a client agreement. If you supply and install kitchens, you will also want to include reference to delays, faults and payments. This contract is known as business terms and conditions.
If you supply products or are a reseller, you will want to ensure that a contract clearly defines the terms of your supply or reselling arrangement. This is to ensure that each party is clear about their obligations. A well-drafted contract will also assist you to resolve disputes if they arise.
This may seem like a lot of extra work. However, in the long term, a well-drafted business contract or terms and conditions will ensure you are adequately protected and you understand your obligations and legal requirements.
Starting a new business often means that you have to hand over some of the responsibility to new employees. You may wish to engage new people as full time, part time or casual employees. If you do, it is best practice to have an employment agreement in place to set out the terms of the relationship. This can include reference to:
- probationary periods;
- working hours; and
- disciplinary processes.
It is also vital that you know which modern award applies to your employees. A modern award sets out the minimum conditions you must provide to employees such as pay, overtime and breaks. You should also understand what is required for ‘pay as you go instalments’ (PAYG) and superannuation payments.
Employees may not be the most appropriate option for your business. You may wish to engage contractors instead. There are considerable regulations surrounding contractors in Australia. It is best to use the Australian Taxation Office and Fair Work tools to help you determine whether someone you hire is a contractor or an employee. If you do have a legitimate contractor relationship, it is recommended to have a clear contractor agreement in place. This contractor agreement should set out key terms such as:
- ownership of any intellectual property that the contractor develops;
- interaction with your customers; and
Depending on the products or services you are providing to your customers, you will need to know if you are required to hold a licence to operate in your state. Generally, building commissions, fair trading or industry bodies can inform you of which licence you require, if any. Typical businesses that require a licence include:
- food services; and
- health providers.
If you are unsure, it is best to check. If you’re operating out of a fixed premise or mobile site, you may also require council permits or approvals to operate your business. Each local council can provide you with guidance as to your obligations and how to maintain your relevant approvals.
It is important to keep in mind several legal considerations when starting your business. These include:
- deciding on a suitable business structure;
- registering your business for an ABN and business name;
- sorting out your taxation requirements; and
- protecting your intellectual property.
Once you have considered these steps, you can start engaging customers. Although operating a business is no easy task, these legal considerations will help you establish a successful and legally compliant business in Australia.