Choosing the Right Business Structure
When starting a business there are so many decisions to make in a short period of time, one of the most important being the legal business structure you will use to run your business. We can assist in this early decision-making process by ensuring all crucial elements of your business are properly considered
The different types of commonly used business structures are:
The Sole Trader structure arises where an individual operates a business under an Australian Business Number (or more commonly known, ABN). It is considered simple and inexpensive and, suitable for very small businesses. As the sole owner, you have total control and management of the business, with one significant downside being that you are personally liable for all the debts and liabilities of the business.
A company is an entity that is separate from its owners and directors (e.g. it can sue and be sued in its own name). On formation, shares in the company are issued to the owners and, directors are appointed to manage the business. Criticisms of company structures include; higher administration and set up costs, complex reporting and increased regulations. Whilst the debts of the company cannot be enforced against business owners, certain liabilities if remain unpaid or upheld, may be enforced against directors personally.
The partnership structure is used where two or more people come together to form a business with a common purpose to make a profit and is generally an inexpensive, simple to form and easier to dissolve business structure. Each partner is jointly liable for the debts and liabilities of the partnership and bound by the conduct of other partners.
Upon formation, it is crucial to appoint a lawyer to put together a partnership agreement which sets out the terms and management of the business.
A trust is a legal structure which is created where a person (trustee) holds property, incurs liabilities and earns and distributes income for the good of one or more beneficiaries. Trusts can provide business owners with significant tax minimisation benefits and can be used in conjunction with companies to achieve the benefits of both asset protection and income splitting.
On the downside, once established, trusts are quite rigid to operate and changes to trust deed terms should only be made after careful consideration to avoid triggering tax consequences. Ongoing administration and setup costs can also prove expensive.
A Shareholders Agreement is a legal document that sets out the rights and obligations of company shareholders with the primary aim of protecting the interest of the company. They are formulated to address issues that may arise throughout the business’ life by deciding in advance how such issues should be dealt with.
Each shareholders agreement will vary depending on the circumstances and shareholders of that business. Our lawyers can assist with drafting, negotiating or reviewing shareholders agreements and advise on:
- Roles and responsibilities of shareholders
- Exit strategies
- The price of any share sale/purchase
- Restrictions on outgoing shareholders competing against the company
- The ability for founding shareholders to veto certain fundamental company decisions, or alternatively the percentage of shareholders’ approval required to do
- Payment of company earnings to shareholders; and
- Shareholders indemnity for directors
Starting a business requires a large investment of time, effort and money so setting up a shareholders agreement goes a long way in protecting that investment and is also a great way of managing the expectations of your shareholders at the very beginning of a business relationship.
In addition to shareholders agreements, our team can assist with:
- share subscription agreements
- share vesting agreements
- buy/sell agreements
- employee share schemes
- advising on business structuring
- assisting in resolving shareholder disputes.
Registering your company with the Australian Securities and Investments Commission (ASIC) is an important step to legitimising your business. Our business advisors are on hand to assist with:
- Company registration and acquisition of an ACN (Australian Company Number)
- Applications for company name reservation
- Company name and domain name registration
- Australia Business Number (ABN) applications
- GST and PAYG withholdings registration
- In-depth research into existing company names, trademarks and domains
- Determining the correct business structure
Additionally, our commercial contract lawyers are available to prepare shareholders’ agreements, employment and contractor agreements, and other key company contracts, constitutions and agreements.
Business terms & conditions
A professional compilation of business terms and conditions are essential to protect you and your business in the unfortunate case of a dispute. Your terms and conditions are dependent on the type of business you operate and can include:
- Sales terms and conditions for e-commerce and online businesses
- Client agreement or service terms and conditions for service-oriented businesses
- Marketplace terms and conditions for marketplaces seeking to establish the terms of their relationship with both suppliers and consumers
No matter your industry or sector, we have the right business lawyer in Sydney to assist in drafting and polishing your business terms and conditions to ensure that they meet your specific needs and remain compliant under Australian Consumer Law.
Discretionary Trusts are asset ownership arrangements that help protect personal assets from company debts or liabilities. If you are a company director, we can help you determine if a discretionary trust is the best way to safeguard your personal assets.