How Commercial Law helped Bob – [a case study]
What is commercial law?
Commercial law is law relating to business.
I’ve put up there some of the things that we do in terms of business, and some of the things we don’t do, in the context of commercial law.
What we do
Business succession planning, planning for your future, planning for the business’ future, planning your exit strategy, business structuring.
So the start of the work, or when you buy a business, or when you establish a business… what’s the best structure for you? Those two are quite interconnected.
Commercial disputes. So when you have a fight with a customer or a supplier or someone else in your business, we can assist with those.
Business purchases and sales, acquiring a business or a new business or part of a business, or assets for your business, or selling your business or part of your business or assets from your business.
Dealing with your customer contracts, terms of trade, guarantees, credit terms, and other things — whenever you are dealing with a customer. You need to be very clear about the terms on which you do so.
Contracts with your suppliers — so from the other end, the people who provide services or goods to you in your business. You need to be very clear about what the terms you work with them are.
Commercial and retail leasing — so where you work, where your office, factory or shop is. Dealing with the legal advice around those, as well as intellectual property protection. Trademarking is the main area we deal with in that.
What we don’t do
We don’t do neighbourhood disputes, criminal law, or construction law.
Our commercial law service doesn’t include family law. It doesn’t include personal injuries law. It doesn’t include employment development work, or migration.
Commercial Law Case Study
I’d like to talk you through a case study of a sample client we might work with over the years.
In this case we’ve got Bob. Bob is a widget repairer, and a widget builder. He’s worked in a private business for a few years. He’s finished his widget degree at university.
He’s decided he wants to start his own business, servicing widgets. So it’s 2014. He speaks to a family friend, Mantis who says, “I know a guy you should speak to. Go and speak to James Ballantyne at Ballantyne Law”.
Bob books an initial consultation for a very modest discounted fee. We had a chat with him about what he needs and what his business needs are.
He’s going to start his own business working from home. He’s going to start as a sole trader. His uncle told him, “You’re only small. You only need to be a sole trader. You don’t need to worry about companies or trusts or any of those things. Do it later when you’re big enough’.
I quickly explained to him what the risks of doing that are. We decided he should speak to an accountant and I referred him to a good accountant.
We talked about some structuring matters and we ultimately decided, based on what he wants to do in the future — which is potentially to introduce a new owner to the business. His younger brother is in the widget industry as well.
We decided that a company structure, with that company owned by trusts, is probably the best structure for him.
He decides to establish a company. The accountant helps set him up with that. And then, we get moving with starting the business. We register a business name and we talk about trademarking.
We also discuss with him the importance of terms of trade — the terms on which he deals with his customers. But Bob’s a handshake kind of guy, so he says, “I’m not going to waste money on that. My clients are good blokes and they’ll always pay me”.
Moving forward a couple of years and the business is going pretty well. Bob decides that he has outgrown his home business and wants to find an office to work in.
So he finds a lease and he comes to see us about the leasing work. We assist him in negotiating some very good terms for his lease.
He doesn’t have to provide any personal guarantees because he’s providing a bank guarantee. We get some fixed rent increases, and market review terms, and he’s very happy.
At this point, his brother decides he wants to invest in the business. So we met with Bob and his brother. We implement a share sale agreement where Bob sells some of his shares to his brother, and a shareholders agreement, which is an agreement between them about how they’re going to operate their business and what they’re going to do.
And also, because they’re both young guys, they’ve both got young families, we talk about a buy-sell agreement, which is an agreement that essentially puts in place an arrangement if that if something happens to one of them — a death, an injury, an accident or otherwise — insurance can fund a buyout of that person’s share of the business to make sure their family’s looked after.
To assist with that, we refer him to a financial planner, who does the insurance work and establishes a financial planning relationship.
At around this time, one of Bob’s biggest clients goes missing and doesn’t pay him about $50,000 in work.
Bob kicks himself and wishes that he had good terms of trade. Fortunately we’re able to take some legal action and recover the money. But there is quite an expense to that.
At that point in time, Bob decides maybe he should stop trusting people and have a good contract in place with his clients. So we put in place some terms of trade.
In 2020, Bob’s business is going extremely well and he decides to get into the manufacturing of widgets. He decides, with advice from his financial planner and his accountant, that he’s going to buy a factory in a new self-managed super fund that he’s going to establish.
He has to borrow some money for this. So we referred him to a mortgage broker who introduced him to an SMSF loan. He needs some personal guarantee advice around this loan. So we refer him to a residential conveyancer because we are not independent of the transaction and the conveyancer would be able to provide the necessary certificates..
We then establish a bare trust arrangement, which allows him to purchase the factory in his self-managed super fund and then lease it to the company that operates the business.
At around that time, his brother, unfortunately suffers an accident, which means he’s totally and permanently disabled.
But, because the financial planner has done such a good job, he’s insured. So Bob is able to pay out, using insurance proceeds, for his brother’s interest in the factory.
But that’s an insurance policy his brother doesn’t own, so we are still able to refer him to a personal injury lawyer, who gets him an additional pay out.
Most importantly for the business, it has some certainty so it’s able to keep running even though one of its key persons is unable to work in the business.
For Bob’s brother — his family is able to pull out their equity that’s contained in the company and be paid for it. And Bob is able to own the whole business and keep it running.
At around that time, Bob takes a look at his life and says, “Well, I’ve got to start thinking about what I want to do in the future”.
There’s a couple of young guys in his management team who are interested in potentially stepping up and becoming more important to the business. So we start talking about employee share schemes and start entering into some agreements to sell down some of Bob’s interest to the next generation.
Now Bob has a plan in place so that, in the next 10 or 15 years when he wants to retire, there’s someone ready-made who can buy out the business when he goes.
So over the coming years, we will continue to work with Bob and eventually he will retire very happy with the commercial work he has received from Ballantyne Law.
If you have any questions, please contact us (please book a free telephone consultation with one of our commercial lawyers) to arrange a time to discuss and we provide you with a quote and timeframe.
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