Starting and Structuring a Business
Once you have made the decision to start a business, the first and most important consideration should be to determine how best to set up and structure your business. Failure to give proper consideration to this from the outset can result in a raft of issues and costly rectifications later on. There are numerous ways in which a business can be structured. Each alternative has its own inherent advantages and disadvantages which need to be considered in the context of your business goals and specific situation.
Accordingly, it is vital that you speak with a solicitor about the various available business structures and how these fit with your goals for the business. It is also important to speak with an accountant about any relevant taxation implications which may result from each alternative structure.
The following business structures should always be considered:
- Sole trader;
- Partnership; and
Regardless of which of the above structures applies, a business may or may not be managed by a trustee – link to Trusts page for the benefit of beneficiaries.
Perhaps the simplest form of business structure is where an individual trades in their personal capacity as the owner and operator of a business.
The benefits of such arrangement can include:
- Significant autonomy, independence and control for the business owner;
- Simple and relatively low cost to set up; and
- Access to business profits and losses.
The limitations of sole trading can include:
- Prospective liability and risk, in particular potential exposure of personal and business assets; and
- Business success often tied centrally to the individual, and therefore risk and reward unable to be shared with other partners.
Another common business structure is a partnership. Essentially a partnership comprises two or more individuals or legal entities carrying on a business with a view to common profit. Generally, partners share in profits and losses of the business and are jointly are severally liable for the debts of the partnership.
The benefits of such arrangement can include:
- Relatively low costs to establish;
- Risk and reward shared;
- Raises prospect of different skills and assets being contributed to business by each partner; and
- Losses can be accessed directly by partners.
The limitations of partnerships can include:
- Exposure to joint and several liabilities limiting opportunity for asset protection; and
- Prospective conflict and disagreements in decision making affecting business and stalemates.
Company structures are often utilised with a view to creating a legal entity that has its own personality and standing. This associates the right to own property, operate a business, to sue and conversely, being sued. Generally speaking, a company structure allows the owners, as shareholders, to be separated to a certain degree from the business operations of the entity.
Benefits of utilising a company structure include:
- Prospective asset protection for shareholders who enjoy limited liability for company debts. It is pertinent to recognise that directors of companies can be liable in certain circumstances; and
- Flexible structure to introduce new parties to business via transfer of ownership by shares.
The limitations of company structures can include:
- Costs associated with set-up, ongoing reporting and accounting;
- Loss of control, with decision making power to the board of directors etc.;
- Extensive regulatory compliance necessary; and
- Office holder obligations, risks and liabilities.
Considerations to make when deciding which structure to utilise
It is always best practice to consider where you hope your business will be in 10 to 15 years from now, not just what you need right now. Our Forge Legal contracts team are well versed with business structures and have guided many businesses, both local and abroad to guide them to achieve their business goals and aspirations. As any structure requires a solid foundation, we can help you choose the correct one for where you want to be.
Policies are a legal document that outlines requirements and expectations of staff and ensures that relationships and behaviour are properly managed and documented, a rule book for employees and managers to follow. Having well-drafted policies is necessary for effective control of managing employees, maintaining your business direction and reducing the risk of litigation for any small, medium or large business. As businesses grow, the importance of having well-drafted policies become more necessary, in particular when managing the day to day behaviour of staff and how they conduct business.
Policies can be written to cover any imaginable scenario, they just need to be drafted correctly. Obviously, the more common a scenario is or may be, the more important it is to have a company policy on. Some common policies are:
- Social Media;
- Human Resources Dispute Resolution;
- Confidentiality Agreements;
- Drug and alcohol policies; and
- Employee conduct
Forge can assist you with your business policy needs. Whether you prefer very general, all-encompassing policies, which mitigate minor amounts of risk, or bespoke ‘ironclad’ policies specifically designed for no loophole, ultra-performing specialised services, Forge Legal’s contract law and business team is second to none.
When running a business, it is imperative to ensure that you properly document all business arrangements and relationships. This requires that your business documentation is up to date and otherwise compliant with the current state of the law. All too often, businesses rely upon agreements or ‘antiquated’ documentation that fails to accommodate developments in the law. This can result in a range of adverse outcomes which can be prejudicial to your business’ interests.
Regularly reviewing your business documents, and where applicable, receiving legal advice about the suitability of such documentation can assist you to manage your risk in this respect. Similarly, where business documents need to be drafted, the assistance of a lawyer with experience in relation to commercial matters is best placed to assist you to protect and advance your interests.
The team at Forge Legal is experienced in assisting business owners to document any and all commercial arrangements effectively. With decades of business knowledge and strategy, we are best placed to assist with:
- Business policies;
- Authoring legally compliant invoices;
- Authoring legally compliant letters;
- Writing or reviewing contracts;
- Examining lease/rental agreements; or
- Documenting staff and performance issues
As with any well-oiled machine, it pays to have your business documentation integrating smoothly and seamlessly to minimise the time you spend on dealing with those complicated issues that fall through the cracks.
Winding up a Business
There are several reasons as to why you may choose to close a business. When closing a business and winding up its operations there are a number of issues which you need to give due consideration to. These issues range from dealing with your employees, bringing relevant service or customer agreements to an end, selling business assets and satisfying liabilities to dealing with relevant business records and taxation matters.
Seeking appropriate advice from an experienced lawyer can assist you to ensure that this process is conducted efficiently and effectively, mitigating the potential risk of litigious action ‘down the road’.Forge Legal has assisted many SME’s in relation to their legal obligations and requirements when winding up operations as a business. If you are thinking of, in need of guidance or to formulate a business closure plan, contact us today.