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Starting a Business or Incorporation of a Company

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We regularly advise clients who are starting a new business, or restructuring their current business arrangements, as well as those that wish to sell or put a business succession plan in place.

The type of business structure that best suits your needs will depend upon a number of factors which may include:
  • the type and size of the business
  • finance requirements;
  • establishment fees and maintenance costs;
  • tax obligations; and
  • the level of asset protection.
The 4 maintypes of business structures commonly used by small businesses are:
 
1. Sole Trader - A sole trader is the most simple and inexpensive form of business structure to set up. The structure consists of an individual trading on their own and operating under their own name or with a registered business name. Registration of a business name does not make the sole trader a separate legal entity. The sole trader controls and manages the business and is personally responsible for all debts and liabilities.
 
2. Partnership - A partnership is formed when 2 or more people (up to 20) go into business together with a view to making a profit. They may operate under their own names or with a registered business name. A partnership is not a separate legal entity and doesn't pay income tax on the income earned by the partnership. Instead, each partner pays tax on their share of the net partnership income. In a partnership liability is also unlimited (unless you are in a Limited Partnership) and extends to debts incurred by a partner without the knowledge or consent of the others.
We regularly advise our partnership clients to put in place a formal written Partnership Agreement to set out each partner's responsibilities and reduce the likelihood of disputes. For example, one partner may be contributing more money or time to the business and therefore be entitled to a greater share in the business. This type of agreement can also cover what happens if the structure is dissolved or changed, for example, through the retirement or death of one of the partners.
 
3. Proprietary Limited Company – a private company is a more complex business structure formed by one or more people who wish to have a business that is a separate legal entity to themselves. The shareholders own the company and the directors run the company. The directors of a company, as well as company employees, can be shareholders. There are costs associated with registering a company and the company is taxed on all profits. However, a company often offers a greater level of asset protection as opposed to some of the other business structures, as your personal assets are separate from the business.
Private companies are regulated under the Corporations Act (Act) which sets out substantial obligations for company directors. Establishment and ongoing administrative costs associated with the Act compliance can be high which is why the structure is generally considered to be better suited to medium to large businesses.
 
4. Trust - A trust is a business structure whereby thetrustee holds property and earns and distributes income on behalf of the beneficiaries. One of the most common types of trusts is a discretionary or family trust. There are costs associated with establishing a trust and for discretionary trusts, profits are distributed to the beneficiaries at the discretion of the trustees and can, therefore, be distributed in such a way to minimise tax, such as by distributions to beneficiaries in lower tax brackets. A trust often offers a greater level of asset protection as opposed to some of the other business structures if the trustee is a company that owns no assets.
 
When starting up a new business it's important to find out what registration and licences apply to you. This can be complex as local, state, territory and federal governments all handle registration and licensing for various aspects of your business.
 
You also need to understand your obligations in regards to:
  • Registering your business name;
  • Your business structure;
  • Registering your domain (if you want to trade online);and
  • Registering your trademark (if you want to legally protect your brand and stop others from trading with it).
You may also need to register your business for:
  • Australian business number (ABN);
  • Fringe benefits tax (FBT);
  • Goods and services tax (GST);
  • Pay As You Go (PAYG) withholding;
  • Tax file number (TFN); and
  • Pay-roll tax.
If you intend to employ people to help you operate your small business, you'll need to start thinking about how you will manage them effectively. As an employer, you have a number of legal requirements and obligations to adhere to including awards and conditions, superannuation, workers compensation and OH&S regulations. When the time comes for you to take on new employees, you should be aware of all the relevant employee entitlements. These can range from wages and conditions to holidays, leave, superannuation and redundancy entitlements and can be set out in an Employment Agreement.
 

Call one of our Commercial Lawyers for free initial telephone advice on your circumstances on (02) 9525 8688.

Key People

Dean Groundwater 

 has 17 years experience including 7 years in the Business Services, Taxation and Insolvency Divisions of a major accounting firm. Dean’s practice includes drafting all types of commercial agreements, dispute resolution and commercial litigation ...read more

 

Denis BowlesDenis Bowles 

Denis Bowles has specialised in commercial law for the last 20 years. Denis has wide and valuable experience in commercial transactions and large scale sales and acquisitions, advising on contractual disputes and conducting commercial litigation ...read more 

sutherland shire lawyer craig pryorCraig Pryor 

 Craig Pryor has extensive experience advising on commercial contracts, conducting commercial litigation and civil litigation generally. Craig regularly advises clients on commercial matters relating to the Corporations Act and drafting commercial ...read more

 

Denis BowlesJayne Humphreys 

Jayne Humphreys, Senior Associate, works exclusively in estate planning and can prepare your Wills, Powers of Attorney and Enduring Guardianship documents. Jayne can provide you with detailed advice upon testamentary trusts, avoiding estate claims, protecting assets for beneficiaries and tax minimisation ...read more

Anika Fleet 

Anika is now a member of the WMD Corporate and Commercial Group where she is primarily involved in acting for clients in Local, District, Supreme and Federal Court proceedings, providing commercial and corporate advice, providing employment advice, and drafting a range of commercial documents.  ...read more  

Kathryn Harris 

Kathryn has experience advising clients on commercial matters and drafting, reviewing and negotiating commercial contracts, including business sale and purchase agreements, services agreements, agency and distribution agreements and terms and conditions of trade.  ...read more  

Michael Terry-Whitall 

Since joining the firm Michael has worked predominantly in the Criminal and Commercial law divisions where he has gained experience in both criminal and civil litigation. Michael is experienced in the drafting of extensive legal documents and briefing Counsel for complicated matters.  ...read more  

 

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