Starting a business: The legal foundations you need to get right

03 Sep Starting a business: The legal foundations you need to get right

Starting a business is exciting, but the legal decisions made at the beginning can have long-term consequences. 

From choosing the right structure to employing staff, signing contracts and protecting your brand, there is much more involved than simply registering a name and opening the doors.

Choose the right business structure

One of the first decisions is whether to operate as a sole trader, partnership, company or trust. Each structure has different implications for taxation, control, administration, asset protection and personal liability. A company, for example, is a separate legal entity, but directors still have important legal duties and can face personal consequences in some circumstances.

Changing structures later is possible, but it can involve additional cost, tax consequences and administration. Speaking with both a lawyer and accountant before starting can be extremely valuable.

Get your registrations right

Most businesses will need an Australian Business Number (ABN), and a business name generally needs to be registered if you trade under a name other than your own. Companies must also be registered with ASIC.

Depending on turnover and activities, you may need GST, PAYG withholding and other tax registrations. Licences, permits and council approvals can also vary according to your industry, business activity and location.

Put agreements in writing

Many business disputes begin with people relying on verbal understandings. If you are going into business with another person, consider a partnership agreement, shareholders agreement or other ownership agreement that explains decision-making, responsibilities, funding, exits, disputes and what happens if an owner wants to leave.

Customer terms, supplier agreements, contractor arrangements, confidentiality agreements and commercial leases should also be carefully reviewed. A contract may contain guarantees, indemnities, restraints, termination clauses or liabilities that become very important when something goes wrong.

Understand your obligations to customers

Businesses selling goods or services must understand the Australian Consumer Law. Consumer guarantees apply automatically in many transactions, and businesses cannot simply remove those rights through a “no refunds” policy or their own warranty terms. Advertising, pricing and representations must also be accurate and not misleading.

Employing people creates another layer of responsibility

Once you hire staff, workplace laws become critical. Minimum employment standards, modern awards, wages, leave, superannuation, record keeping and pay slips all need attention. Work health and safety obligations also apply, including duties to provide a safe working environment and appropriate systems of work.

Protect your name, ideas and information

Registering a business name does not provide the same protection as a registered trade mark. If your brand is important, consider whether your name, logo or other intellectual property should be protected.

Businesses should also consider privacy, cyber security and how customer and employee information is collected, stored and shared. Some small businesses are covered by the Privacy Act even where annual turnover is $3 million or less, depending on their activities.

Think about risk before it becomes a problem

Insurance, debt arrangements, personal guarantees, leases and funding documents deserve careful consideration. So does the possibility of disputes, a business partner leaving, illness, incapacity or the death of an owner.

Good legal planning is not simply about avoiding trouble. It creates clearer rules, protects relationships and gives the business a stronger foundation for growth.

Professional advice matters

Every business is different, and legal obligations can vary by industry and state or territory. Before signing leases, accepting finance, bringing in partners, employing people or committing significant money, obtain advice from a qualified lawyer, accountant and other relevant professional advisers.

The cost of good advice at the beginning can be modest compared with the cost of fixing a poorly structured agreement, tax problem or legal dispute later.

This article contains general information only and should not be relied upon as legal, tax or financial advice.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)