Don’t put off getting your business into shape
By Ron Cohen
1 December 2015
When you operate your own business, you shouldn’t put off getting your business into shape.
This blog is a brief overview of some of the important legal considerations for business owners when running their businesses.
1. Business Structure
In choosing the right structure for your business you need to consider your individual requirements and circumstances including the following issues/considerations:
- The ability to income split;
- Asset protection;
- Business succession;
- Other investments or trading entities that the structure is connected with;
- Future plans i.e. what is the big plan for the business? Potential expansion, retirement or franchising/licensing opportunities? and
- Whether it is likely that personal guarantees will be sought from landlord, suppliers and financiers (as this may impact on who is appointed or remains as a director of any company).
You need to decide what structure is best for you, which may be:
- Individual/sole trader;
- Trust (Unit/Discretionary/Hybrid) and whether to have a corporate or individual trustee;
- Asset holding entity and separate trading entity; and
- A combination of the above.
If your ultimate structure involves other parties then it is critical to enter into a Shareholder/Unitholders/Partnership agreement (as the case may be) to address your relationship and to deal adequately with issues affecting your business, what happens when there is a dispute or a party wants to retire or sell out.
It is common for partners of a business who have no formal agreement to end up in expensive litigation when a dispute arises. A lot of disputes can be avoided when a well worded agreement is in place as the agreement normally deals with the common matters which can cause or lead to a dispute.
For Existing businesses, have your company and trust registers been updated for any share or trust transfers and allotments. Has a director or secretary changed? Have you changed partners? Have you documented these changes properly and notified ASIC, if required.
Have you considered whether your current business structure is still suitable? As your business expands, so does the consideration for adequately protecting it.
2. Business Name
Save for certain exemptions, most businesses are legally obliged to register a name so as to enable the identification of the entity that is carrying on the business under that business name.
ASIC maintains a consolidated register of all business names registered throughout Australia.
If you are buying a business, the business name owned by the Vendor of the business is often transferred to the buyer as part of the transaction.
- Do all employees have an employment agreement which has been signed?
- Are your policies and procedures concerning drugs, alcohol, bullying, internet and email use up to date?
- If you employ those receiving minimum wage, are they obtaining the correct and up-to-date rates?
- Have you correctly classified employees and contractors?
- If employees deal with your customers and clients do you have adequate restraint and non-competition clauses?
- If employees prepare or develop products, designs and/or concepts do you have provision to confirm that ownership belongs to the employer; and
- Similar considerations apply for contractor and agency agreements.
4.Customers, Clients and Suppliers
Most businesses supply goods or services for a fee and many purchase goods or services from third parties as part of their business.
- Adequate agreements need to be in place for these transactions;
- Do you have an agreement and/or trading terms for the sale or supply of your business goods or services? Do they need to be updated?
- How do you charge, when do you get paid?
- What happens if your customer or client does not pay?
- Do you take any security such as directors’ guarantees, PPSA charges over goods (e.g. retention of title) part payment in advance etc;
When you purchase goods or services you also need to consider the above issues.
It is very common for businesses to be conducted from leased premises and for business owners to conduct their business from and operate as a tenant under a Lease.
When operating a business from leased premises, or if you are landlord of a premises being leased for business purposes, the following considerations may apply:
- When is your lease due for renewal?
- Have market or annual rent reviews been conducted and the tenant notified of the change in rent?
- When is the next rent review due and how is rent to be adjusted?
- What outgoings are payable?
- If you are a tenant, have you exercised your option for a further term?
- If you are a landlord, have you notified the tenant of the date that the lease must be renewed to comply with the Retail Leases Act (if applicable)?
- It is important to make sure any renewed lease is documented properly and that you do not rely on the previous lease which has expired; and
- If you are a landlord, have you requested an updated security deposit when the rent increased (if this is permitted by your lease)?
6. Other Considerations
Without being exhaustive businesses should consider some or all of the following:
- Finance. What are your finance arrangements with your bank? What securities have the bank taken?
- Directors’ Guarantees. Are any directors’ guarantees joint and several. What does your partnership, shareholders or other agreement say about business liabilities?
- PPSA. Are any finance or business arrangements registered under the Personal Property Securities Act? Do you need to register (or discharge) any securities?
- Intellectual property. Is it time you registered your key trade marks to protect them from competitors?
- Licences and Permits. A Business Owner will need to ascertain whether there are any licences, permits or other registrations or requirements to legally operate. For example a food business will have various foods and health requirements, a business selling liquor will require a liquor licence, an aged care will require specific permits and licences etc. If you are establishing a new business you need to ascertain what permits or licences are relevant and ensure that these are obtained before the business opens its doors;
- GST. Subject to various threshold turnover limits (which an accountant can advise on) most business owners will need to be registered for GST; and
- Buying and selling a business. Normally anyone wanting to sell and purchase a business will enter into a formal Contract of Sale of Business which will set out the terms of the transaction.
- The Contract will include the price payable, any stock, employees, equipment and assets being transferred and various other terms relating to the transaction.
Don’t put off getting your business in shape until it is too late.
Tisher Liner FC Law have been assisting clients for over 40 years in achieving commercial outcomes and guiding them through business law issues. Please feel free to contact one of our experts for more information.
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