Business Law

What's a business name?

A business name is simply a name or title under which a person or entity conducts a business.

Unless you fall within an exemption (i.e. you are trading under your personal name or a company name), you must register your business name to trade using a particular name.

What's the difference between a trading name and a business name?

In a nutshell a Business Name is the new “trading name” that used to be used.

A trading name was a name used by an entity or person to trade under. A trading name is not a registered business name.

Trading names were collected prior to 28 May 2012 by the Australian Taxation Office (ATO) and are currently displayed on the Australian Business Register (ABR).

Since 28 May 2012, the ABR no longer collects or updates trading names.

Any existing trading names collected prior to this date will be displayed on ABN Lookup until 31 October 2018. After this date, they will be removed.

I'm setting up a company and the form asks about shares?

The shares relate to shares in your company which, as an example, could be $2 of share capital. You do not need to make this payment to ASIC it simply recognises the amount of shares and capital “contributed” by the members.

If you need assistance in establishing a Company we recommend contacting us.

I'm starting a business with a friend / partner, what structure should I use?

The ideal structure will turn on a variety of factors including (among others):

(a) the personal circumstances of each of you (do you have other income/day-jobs?)

(b) forecasts for each arm of the business, will retail be making losses in the beginning?

(c) exit-strategy

A partnership is useful in situations where the partnership is making a loss which can be offset against each respective partner’s income from other sources. From a legal liability and exit perspective, a company (potentially held by family trusts) might be better suited.

In either event, a shareholder or partnership agreement will be necessary.

We’ll help assess the circumstances and advise on how to appropriately structure and document the business relationship.

What should I expect entering into a shopping centre lease?

Generally commercial leases require the tenant to pay all outgoings associated with the property.

Advice – read the terms carefully (or engage a lawyer), pushing back on any terms will be difficult but you should at least be completely aware of your obligations prior to entering the lease. Expect that the financial position of the entity entering into the lease will be examined and a personal guarantee will also likely be required.

What is a partnership / shareholder agreement? Why do I need one?

If you are running a business with others, partnership/shareholder agreements will save you a lot of headaches and tend to deal with: exit scenarios, who is obliged to do what (particularly if you are taking different roles) and what happens when a partner does not contribute, becomes ill, passes way.

From experience, dealing with these matters after the fact is very difficult and best avoided by engaging a lawyer to draft a shareholder/partnership agreement.

If business structure changes from Soletrader to Company, can the same ABN be used or will a new ABN and ACN be required?

The answer is no, you will need a new ABN. When you incorporate the company you will be provided with an ACN.

How much more expensive is it to maintain a Company registration when compared to a Soletrader

Generally speaking, other than the one-off start-up costs of registration (approx $500 – $1,000), not much more.

Annual ASIC cost is around $245, tax compliance and financial account preparation won’t cost you much more than what you are already paying for a business tax return as a sole trader, the only thing that changes in that regard (which may increase the cost marginally) is the actual tax return which is prepared.

I bought a company and would to access the old records, how do I go about this?

Your rights will largely depend on the form of the share sale and purchase agreement. You normally see a contractual right to be provided with business records dating back a particular point in time.

Enforcing the right from a practical perspective may require engaging a lawyer such as us to review the contract and correspond with the former owner.

I'm starting a business as a sole trader, what are the main problems with this structure?

If limited liability is important to you, the sole trader/partnership structures will not provide the protection that a company will.

As a sole trader/partnership, your personal assets are at risk to the business creditors.

How do I sell a business as a sole trader?

As a sole trader, you can only a business by selling the assets/IP/customer lists/etc. If you sell everything needed to continue to operate the business it will still be a sale of a going-concern.

As a company you have the choice to sell the business + assets or the shares in the company, which can sometimes make it easier to find a purchaser or obtain a higher price.

The difficulty with selling assets is that any contracts (leases, supplier agreements, etc.) will likely need consent to transfer to a different party, this mess is avoided where you are selling a Company.

TAX LAW & TAX RETURNS

Will my business be taxed separately from my day job salary?

Unless you establish the business in a separate legal entity your income from the business will form part of your individual taxable income (i.e. if your marginal rate is 40% you will taxed @ 40% for this extra income).

I'm starting my business as a Sole trader, do I need a TFN, ACN or ABN?

As a sole trader, you can use your same individual TFN.

An ACN is only used by Companies.

You will have to register for an ABN if you do not already have one personally.

How much more expensive is it to maintain a Company in comparison to a Sole Trader

Generally speaking, other than the one-off start-up costs of registration (approx $500 – $1,000), not much more.

Annual ASIC cost is around $245, tax compliance and financial account preparation won’t cost you much more than what you are already paying for a business tax return as a sole trader, the only thing that changes in that regard (which may increase the cost marginally) is the actual tax return which is prepared.

If a company pays tax, does this reduce the tax paid to employee / directors?

Income tax paid by a Company can be used to frank a dividend to shareholders – whereby the shareholders effectively get the benefit of the 30% paid, not employees who receive a wage.

The Company obtains a tax deduction for wages paid, but has to withhold income tax on wages at the employees effective tax rates, notwithstanding any income tax paid by the company on profits.

How does the R & D credit/offset system work?

Generally, the R&D tax incentive allows a small company to claim a 45% refundable tax offset for eligible activities.  The incentive is quite concessional, compared to the value of a standard deduction of 30%.

A couple of the key requirements:

  • Total deductions relating to the activity for a year must be at least $20,000;
  • You must register with AusIndustry within 10 months after the close of an income year; and
  • You must be undertaking “Core R&D Activities” (definition below).

Core R&D activities are experimental activities:

  • whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that
    • is based on principles of established science; and
    • proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions
  • that are conducted for the purpose of generating new knowledge (including about creating new knowledge or improved materials, products, devices, processes or services).

TRUSTS

What is a trust?

A trust is an obligation imposed on a person – a trustee – to hold property or assets (e.g. business assets) for the benefit of others. These others are known as beneficiaries.

Setting up a trust requires a formal trust deed prepared by a lawyer.

If you operate your business as a trust, the trustee is legally responsible for its operations. A trustee of a trust can be a company, providing some asset protection.

Do I need to register my trust with ASIC?

You do not need to register the trust with ASIC. However, if the trustee is a company it must be registered with ASIC and if the trust carries on business under a name other than its own name, the name must be registered as a business name with ASIC.

Separately, you will need to pay stamp duty to set-up the trust depending on the State.

What is a corporate trustee?

A corporate trustee is used for asset protection and takes the place of an individual trustee who may be liable when acting as trustee.

Do we need to list the trust beneficiaries when we establish a discretionary trust?

No, the typical clauses include the main beneficiaries (normally husband and wife) and include parents, children, grandchildren, etc. as potential beneficiaries.  Keep in mind that the trustee always controls who actually receives a distribution and therefore the wider the better generally.

What's the difference between a trustee and a trust?

A trust is settled by way of deed but is not actually a legal entity.  Accordingly, it needs a trustee (either a person or trustee company) to act on its behalf.  Establishing the trustee company is a separate process to settling the trust and is an optional step.

Contact us for a no obligation consultation (03) 9942 7790