5 great legal tips for startups

Starting a business needs more than just a great idea. It involves planning, getting your finances in order and of course ticking all the legal boxes. Navigating the legal landscape for a new business can be difficult, so we want to share with you the top five things you need to consider:

1.     Are you going to be a sole trader, partnership, trust or company?

The most suitable legal structure will depend on a number of factors including the business industry, the relationship status of the business owner, whether the business is to be owned by one person, a group of family members or friends, the future needs of the business owner and the assets held by the business owner.

The legal structure chosen will impact on how much tax the business owner must pay, whether an owner’s non-business assets are protected if the business gets into financial trouble, the amount of paperwork required and how much tax needs to be paid if the business is sold in the future.

2.    Goods, services or both? 

It is important that you have clear terms and conditions for your dealings with customers. The content of any terms and conditions will vary depending on whether you are selling goods or services to consumers or business customers. Areas that will need to be covered include:
–    Whether you will be paid upfront or on terms of credit
–    A customer’s ability to cancel orders or receive a refund
–    Protecting your Intellectual property
–    Any risks associated with the goods or services.

3.    Business names v trade marks

Most business owners register a business name when starting a business, but mistakenly do not register any trade marks.

Broadly, registering a business name only provides the business with an identity and does not give the business owner exclusive rights to use the name. The right to exclusive use comes with trade mark registration. A trade mark gives the owner the exclusive right to trade under a business name, usually Australia wide.

4.    How will you and your business partners work together?

If there is more than one business owner we always recommend the business owners enter into an agreement outlining how they will work together. This agreement may include issues such as:

–    What decisions require all partners to agree or just the majority
–    Frequency and timing of meetings.
–    How the business may introduction new partners
–    How the business may raise capital from third parties
–    Who will provide services to the business and how will the partners be renumerated
–    How profits will be distributed
–    The process to be followed if a partner wishes to sell their interest in the business

Working through these questions and developing an agreement with your business partners will also help with understanding one another’s expectations in the business and how you plan to work together to build your business into a success.

5.    Employee or Contractor?

Contractors are great for startups to bring in that digital design whizz or to get help with odd jobs. But it is important to recognise the difference between when you are engaging a contractor or an employee as they are entitled to different treatment in respect of superannuation, entitlements such as leave and taxation treatment.

There are penalties for business’ who fail to recognise when a contractor should actually be an employee so getting this right from the outset is key.

While getting sound advice on the above points may increase a business’ startup costs, it will be the most valuable investment you make. No matter how great a business strategy is, it can all be undone if you are not set up correctly from the start. A small investment now will save you a lot in the future.

by Ashleigh Wall
Special Counsel – Business Law, Harwood Andrews

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