Setting Up A Business: A (Legal) Checklist
Written by: Gabrielle Andersen l Insight Team
If you’re anything like us, the New Year brings with it new energy and excitement, and is often the perfect time to make a fresh start on your business ideas!
Hopefully, over the summer break, you’ve had some time to think about your business ideas and how best to turn them into a reality. Or, if you’re lucky enough to already be running your own business, this time of year can be perfect for finally ticking off some of those long-standing organisational “to-do” items and getting your business house in order.
At Canny Insight, we’re here to help get your business up and running!
Finding The Appropriate Business Structure
Sole Trader
Most businesses will start under a sole trader arrangement.
This has its advantages as there are basically no set-up costs for the structure and it’s very easy to establish and operate as a sole trader. There are however significant downsides, particularly in terms of your personal liability for the debts and losses of the business. The most significant consideration for most people in transitioning away from a sole trader arrangement is that you are at risk of losing personal assets, such as your home if things take a bad turn within your business.
Partnership Agreement
If you are running a business with another person, or a group of people, you may consider using a partnership structure.
Again, partnerships have the benefit of being relatively easy and inexpensive to set up – often only needing an ABN and a partnership agreement. They also come with the advantage of having multiple people responsible for decision-making, and each new partner can contribute new capital to the business. However, liability is once again an issue as each partner is jointly, severally and personally liable for the debts of the partnership, or any claims made against the partnership business. Partnerships can sometimes be difficult to leave as in order to be paid for your share of the business, you may need another partner to buy you out, or for the partners to agree to another partner joining the partnership and buying your share.
Company Structure
As a business grows, a company will inevitably become the most suitable structure.
A company is a separate legal entity, meaning it can sue or be sued. This means that the personal liability of the directors is not automatic unless they have breached their legal obligations – known of as a director’s duties. While a company is a more complex and expensive business structure to set up, it does afford important protection for those running the business. The significant tax advantages are another key reason why people choose to run their businesses under a company structure.
Joint Venture
If your new venture is not so much a business, but a one-off task project, you might consider a joint venture structure.
Joint ventures can be between individuals, companies, or organisations, or a combination, and you can provide a useful way to collaborate on a temporary basis without having to change your business’s structure. It can also present a unique opportunity for combining resources or expertise and grow your business’s products or services in a relatively low-cost way. If you are setting up a joint venture, the contract you have in place between you and the other entity will be pivotal in setting out the decision-making processes, delineating duties and obligations, confirming the division of profits and losses, and will cover important issues such as ownership of IP, confidentiality and terminating or dealing with disputes within the joint venture.
Canny Insight is here to help you find the perfect structure and provide you with the right business contracts – whether it be a shareholder’s agreement, a trust deed, a joint venture agreement, or simply tailored advice and guidance in coming up with the right structure and agreements for your business enterprise.
Want to have a deeper dive into the different Business Structures? Check out this blog that we have previously put together: Getting Your Business Structure Right!
Finding A Premises (Commercial Lease Advice)
Not all businesses will need premises, but if you have found the perfect business premises Canny Insight can help review and negotiate your commercial leases.
When choosing the perfect space for your business it is important to ensure the lease actually suits your needs as the business owner. Often overlooked, rent and outgoings can be one of the biggest liabilities within a business, and negotiating the right deal can be the difference between making it or not as a small business owner.
Some important things to consider when reviewing and negotiating a commercial lease are:
- Does the term of the lease suit your business needs?
Is it too long, or will you have to move on or be subject to rent increases before you’ve been able to make a profit on your business?
- Does the lease have options to renew?
Not only does an option to renew give you peace of mind and stability for your business, it can also make your business more attractive to a future purchaser if the option to sell your business arose. Any income business owners might want to continue the business in the same premises without the headache of finding another premises and having to fit out a new space themselves.
- How is the rent calculated and are there regular rent reviews?
These can have a significant impact on the ongoing rental costs to your business.
- Does the lease have any assignment or subletting provisions?
These can be important for a business sale, as while a new incoming purchaser will need to be approved by a landlord, it means you have the flexibility of transferring the lease to another party without the lease automatically terminating.
- Does the lease allow the tenant to terminate early? Are there any limitations on early terminations, or any fees associated with terminating?
- Are there any make-good provisions?
These can be a significant cost when moving your business on elsewhere, and something to bear in mind when considering the longevity of the particular premises for your business.
- Are there any redecoration clauses?
These can compel the tenant to carry out maintenance or upgrade works in a specified period and can be a significant hidden cost in a commercial lease.
- Are there any incentives that can be negotiated with the landlord, such as a rent-free period or a fit-out contribution?
- What are the outgoings like?
While rent is always front of mind when negotiating a lease, outgoings can add up and it’s important to consider these carefully if they are falling on you as the tenant.
- Is there a ‘permitted use’ clause?
Not only should this be suited to your business, but it’s also important to have the permitted use as broad as possible so that you have that added flexibility, particularly if any transfer, assignment or subletting of the lease is allowed.
- Are you required to get permits, registrations, licenses, or particular kinds of insurance in order to lease the premises?
- Who is the landlord? Are they reputable, contactable, and easy to deal with?
As you can see, finding the right premises is as much about the terms of the lease as it is about the space itself. Get in touch with Canny Insight today for a lease review and experienced advice in order to help you find the right premises for your business.
Engaging Employees + Employment Agreements
Once you’ve found the perfect business structure and a premises for your business, you might be looking to engage some employees to help get your business up and running.
Some businesses may initially engage employees on a casual basis, however, it is important to be aware that is a casual employee has been working with you for more than 12 months on a regular and systematic basis, they may be able to argue for conversion from casual to part-time or full-time employment. While not an automatic right for small business employees, pre-emptively giving your casual employees a permanent status is advisable given the recent judicial decisions which have read a permanent arrangement into casual employment. The consequence of this has been costly for employers and is something to consider if your business has predominantly casual employees.
There is also another important consideration to bear in mind such as meeting your legal obligations in relation to workers compensation and superannuation, and determining if you are operating under Award and finding the correct classification for your employees. These can be complex areas and Canny Insight can assist by providing specific employment law advice for your particular circumstances and employee.
Canny Insight can also prepare template employment agreements for casual, part-time and full-time employees, as well for any independent contractors you may wish to engage on a one-off basis. Get in touch with our team today to ensure you have the right documents in place to protect you as an employer, and your relationship with your staff.
Compliance Advice
Setting up a new business often entails navigating new and complex legislative and regulatory areas.
For example, if you own a cafe in Victoria you must adhere to the Food Act 1984 and the Food Standards Code in the preparation and sale of your food. You will also need to ensure you are meeting the National Employee Standards and superannuation and workers compensation requirements for your employees. You will need to navigate the modern awards to find which one applies to your staff and what classification they will be under that specific Award. You will then need to ensure their workplace circumstances, such as hours and days of work, pay, allowances, leave and other requirements are being met. You will need to prepare policies to address employees safety in the workplace.
Occupational health and safety considerations are paramount, and you will need to ensure you are adhering to WorkSafe Victoria standards. You also need to have the correct insurances in place to protect your employees and the general public. There will be licences and local government planning restrictions that may limit where you can operate and what you can sell. if you are collecting any personal information from your customers – such as through an email list for marketing purposes – you will need to adhere to the Privacy Act 1988. Perhaps you might wish to run a competition or raffle a hamper – then you need to not only ensure the personal information of entrants is securely stored, but you might also require a lottery permit from the Victorian Commission for Gambling and Liquor. You may also be subject to the Australian Consumer Law, so an understanding of how this interacts with your business relationships is required.
The compliance concerns are quite literally endless!
Even a simple idea life a cafe can involve a range of legal and regulatory compliance, and these requirements change from industry to industry, all depending on what your business concept is and where you are operating.
Canny Insight can help to support you through this complicated process by providing industry-specific compliance advice to assist you in determining your legal obligations. We can also review any of your internal policies or privacy statements to ensure you are meeting these obligations and adequately protecting you, your business, your staff and your customers.
Reviewing/Preparing Service Agreements + Terms and Conditions
Another component of setting up a new business is putting in place terms and conditions for the sale of your business products and/or services. Whether these are displayed to the general public or your website, or specifically agreed to by clients when signing up for your products or services, these can provide a critical layer of protection for your business.
Terms and conditions usually address matters such as your payment terms; confirm and limit your obligations and liability in providing the products or services; cover matters such as privacy and confidentiality; protect your business if products or services can’t be delivered on time or for reasons outside of your control; and provide clear processes and standards for terminating the relationship between you and your customer or clients. These agreements often become crucial when disputes arise between you and customers, and it can be really disappointing to realise your terms and conditions aren’t properly meeting the requirements of your business.
You may also need service agreements prepared for any contractors or suppliers you are working with. Canny Insight can prepare service agreements for you that are specifically tailored to the circumstances you require, or we can review a service agreement you have been provided by an external supplier or contractor in order to ensure it is also affording you the protection you need.
Canny Insight, Legal Advice + Help Setting Up Your Business
Canny Insight is here to help with a full suite of business needs.
Take advantage of the New Year energy and get in touch with us today so that we can help set your new business plan in motion or provide expert legal support to grow and consolidate your current business.
