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Considering becoming your own boss? You’ll need to decide on some essentials to give your business a solid foundation
Going into business isn’t only about monetising your great idea. It’s also about protecting it with important legal essentials for starting up a business such as name registration, domain name, trademarking, business structure and possibly even a trust for taxation advantages.
Registration essentials for starting up a business
Business name
This is the name under which your business will operate and the way customers, clients and debtors will identify you. Be aware that registration does not automatically protect your trademarks, designs and patents.
Domain name
Your domain name is the website address for your business. To get one you need an Australian Company Number (ACN) or Australian Business Number (ABN). Don’t have a website ready yet? No problem. Just buy your domain name and use it when you’re ready.
Importantly, owning a domain name doesn’t automatically give you a proprietary interest in using it.
Trademarks, patents and designs
This is your intellectual property, which can be independently registered in Australia so that no-one else (in Australia) can use it. Your Australian registration will also help if you’re planning to register your intellectual property overseas.
Business structure essentials
Are you going to be a sole trader, a partnership, or a company?
Sole trader
The initial set-up fee, which allows you to hang out the shingle and say, “yep, I’m officially a sole trader”, is pretty cheap. But, for some, the freedom is priceless.
It’s the freedom to determine your own destiny, to go where no-one has gone before, to leap over tall buildings in a single bound, and stop bullets and locomotives. Not everyone, however, is a superman/wonder woman, and the pressure of this responsibility weighs heavily on some. Plus, there’s the up-to 46.5% PAYG tax you’ll need to cough-up for the tax man. But, as Nietzsche said, That which does not kill us makes us stronger.
Partnership
Partners can be people or entities and their actions are governed by the Partnership Act.
Unless your partnership agreement states otherwise, partners jointly own all the assets within that partnership.
Partnerships can be general or limited with both carrying different liabilities, rights and obligations. For example, in a general partnership each partner has unlimited liability for business debts, management and for anything the other partners do. In a limited partnership your liability is usually limited to your original investment.
A word of warning: get good tax and legal advice because limited partnerships are treated as companies for tax purposes and they also often carry capital gains tax implications.
Company
A company initially costs a few hundred dollars to register. It is owned by its shareholders and managed by its directors and senior employees.
A company operates as a separate legal entity and bears the liability of its own debts. Accordingly, its shareholders have the benefit of limited liability.
Under the Corporations Act, company directors must be prudent in how they conduct company business and ensure that all tax (profits are taxed at up to 30 per cent) and other obligations are met.
Dividends paid to shareholders are taxed at each individual shareholder’s marginal rate.
Trust
A trust is an obligation imposed on a person or an entity – a trustee – to hold property or assets (such as business assets) for the benefit of others, who are known as beneficiaries.
Trust income (and assets )are distributed to beneficiaries annually with day-to-day operations normally administered by a company or an individual trustee.
The trust deed sets out trustee obligations and how trust assets are to be administered.
The two types of trusts are:
- Discretionary Trust:Discretionary trust beneficiaries are not normally liable to creditors unless they have a vested interest in the assets of that trust. Distributions to beneficiaries are taxed at individual marginal rates
- Unit trust:These are common in joint ventures. Unlike a discretionary trust, members have a vested interest in their units, which makes them liable to creditors. The tax liability of each unitholder depends on their tax structure and, like discretionary trusts, losses are trapped in the trust
The final word
When you’re in the planning phase, you’ll need a clear idea of how your business will operate and establish your goals. This will help you work out how to set it up. However, some set-up aspects are more complicated than others. Seeking legal advice as early as possible can help to give your business the best possible start.
This article was written by Joshua Kaplan and Jeremy Goldman from the MDW Investment team.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.
