Business Structuring Lawyer
Why is structuring important?
Business structuring is important to companies large and small, just as they are to sole proprietorships, discretionary trusts, and more complex arrangements.
This is how your business and investments can be better protected when faced with hostile creditors.
When you call our Gold Coast business lawyers for help with your business structuring or restructuring, you’ll benefit from legal advice and acumen delivered in plain English.
Another important priority, as we work with you and your accounting and financial advisors, will be optimal taxation flexibility.
Common business structures in Australia
The business structure you choose when starting a business in Australia will determine the taxes that apply, as well as your personal liability.
Certain business structures will also necessitate compliance with national and state laws and involve more paperwork.
These are the most common business structures in Australia:
Sole Trader is the business structure for single-handed operations, where one person owns and runs the business.
As a sole trader, you will have full control of your assets and business decisions.
A sole trader structure is the simplest setup with the lowest overheads. You don’t need a separate bank account for a sole trader business — although you certainly would if you want an easier job keeping track of your business income and expenses.
You are personally liable to pay tax on all the income and you can lodge tax returns using your own individual tax file number (TFN).
You need to keep financial records for at least 5 years and you cannot split business profits or losses with family members.
Under the sole trader business structure, you have unlimited liability. You risk all your personal assets if things go wrong.
Although you’re personally responsible for everything, you can of course employ people to help run your business. You’ll need to comply with workers’ compensation, insurance, and superannuation obligations when you take on employees.
Partnerships are business structures owned and operated by two or more individuals.
In Australia there are 3 types of partnership:
1. General partnership
All members of a general partnership agree to share the assets, profits, management responsibilities, and liabilities of the business.
2. Limited partnership
Liability for each member of a limited partnership is limited to the amount of money they have invested in the business.
3. Incorporated limited partnership
Partners in incorporated limited partnership can have limited liabilities but there should be at least one partner with unlimited liability.
Partnership laws differ in each Australian state and territory. For example, in Victoria, partnerships operate in compliance with the Partnership Act 1958.
In this business structure, the trustee manages all assets and runs the business for the trust members or beneficiaries. The trustee can be either an individual or a company.
In Australia, the 2 main types of trust are:
The trustee has flexibility with the distribution to the beneficiaries of the trust’s income and capital.
2. Unit trusts
The trustee does not have flexibility with the distribution as each beneficiary’s capital or income portion is generally fixed.
It’s wise to seek legal advice before you proceed. Each entity has its own advantages and disadvantages.
A company structure expands access to capital and, at the same time, limits the liability for its members.
A company is a separate legal entity — unlike sole trader and partnership business structures — and the money the business earns belongs to the company.
Run by its directors and owned by its shareholders, a company has more complex regulations and higher overheads.
Company directors may be held personally liable if they are found to be in breach of their legal obligations.
Shareholders are not liable for the company’s debts. Their only financial obligation is to pay the company any amount unpaid on your shares when called on to do so.
Companies usually pay income tax via PAYG (pay as you go) instalments.
A company business structure requires:
- Registering for GST when annual GST turnover is $75,000 or more
- An official tax file number (TFN)
- Lodging an annual company tax return under its TFN completing an annual review and pay an annual review fee
- Directors to complete a declaration of solvency each year
A company constitution is an important part of business management. You can adopt replaceable rules from the Australian Corporations Act 2001, create something more original, or mix and match between the two.
Key components of the company constitution include rules for the office and employees, rules for members inspecting books, how directors’ meetings should be run, and how voting should proceed. It also should include how shares and share transfers are to be made and how dividends are to be paid.
Our Gold Coast company lawyers can help you draft an appropriate company constitution that will work in conjunction with your shareholders agreement.
The shareholders agreement is an important company structure document. It lists the equity stakeholders, defines their voting rights, how their decisions affect the business, and how investors exit the business.
The company constitution (see above) can safeguard some unforeseen scenarios but a well-drafted shareholders agreement ensures better protection for shareholders.
The shareholders agreement can set out:
- Shareholders’ rights, obligations, & liabilities.
- How crucial decisions are made.
- How the sale of shares & transfers are regulated.
- How the company raises capital.
- How the company will carry out its business actions that apply when an investor exits the business.
The shareholders agreement should have easy to understand terms. Don’t use a generic agreement. Instead, draft your shareholders agreement to meet your company’s needs.
The rules and provisions you set should benefit both minority and majority shareholders, establishing fair working relationships and protecting each one’s investment.
A non-disclosure agreement or NDA creates a confidential relationship between two or more parties. It is legally binding and is typically used by businesses entering negotiations, potential partnerships with other businesses, or negotiating the terms of a sale or purchase.
The agreement allows the parties to exchange information without the fear of it ending up in the hands of competitors or outsiders.
A confidentiality deed is an agreement or clause usually required of new employees. Its purpose is to manage exposure of confidential marketing plans, business reports, financial documents, information about customers and potential investors, etc.
Employment contracts should be drafted to protect your interests and manage your relationships with employees, with provisions for employee-related concerns, such as time off, sick leave, etc.
Employment contracts should relate to each employee’s status:
- Fixed term
- Employees and ex-employees — especially those with access to your business’ proprietary information — should not feel free to dispense information that would harm your business.
Your employment contracts should have confidentiality provisions to protect your company’s intellectual property, usually in the form of non-compete clauses and non-solicitation provisions.
Your Terms and Conditions establish your business procedures, protect your rights, and limit your liability.
This document will regulate your business relationship with your customers and govern the use of your products, services, intellectual property, website, and apps.
These documents should include how you process online payments.