In Show 118- Phase 2 – Training originally broadcast on Facebook Live on Wednesday 8 August 2018 we explore this interesting topic.
You can download the worksheet for this episode here: 118 WorkSheet
Show Notes
We’re excited to offer a different kind of episode. We’ve decided to offer a training episode about each phase of the Business Legal Lifecycle. This month we the things you need to get right when setting up your business.
First, is the business structure. Getting the structure of your business right is critical for future success. You need to be very careful about choosing the right structure to ensure you aren’t needlessly spending money to fix a problem in the future. Getting the right is critical. Don’t depend on advice from a friend at a BBQ. You need a professional to guide you through the subtle differences between different structures. Accountants, financial advisors and lawyers should all be consulted.
The structures that you can choose from include:
Sole trader
A sole trader allows you to operate without having to setup a costly structure. But it’s key disadvantage is that you are liable for everything including the tax. If you’re running a company with little to no risk this is the best option for you. Changing this structure could cost you a lot of money.
Company
The idea of a company has been around for hundreds of years. It allows you to seperate the risk from the directors of the company from the company itself. The company is made up of the director who has the day to day control of the company and the shareholders own the company and are entitled to the profits. The best reason for creating this structure is to ensure that you are not personally liable for the debts and liabilities the business incurs. One of the disadvantages is that there are ways for governments and creditors to go after the directors of a company.
Discretionary Trusts
This kind of trust is probably the most popular asset protection strategy you can use. The trust is controlled by the trustee who has legal ownership. The appointer decides who will be the trustee. The beneficiaries have beneficial ownership of the trust. The whole point of this structure is to protect individuals and the trusts assets.
Unit Trusts
Similar to a discretionary trust in that it also is controlled by a trustee. The difference is that there is also includes unit holders. Those unitholders are the actual owners of the trusts assets. It gives you the tax flexibility of a trust while maintaining control of the business. Many of the tax advantages of these kinds of trusts are no longer in effect but they are still useful in many contexts – especially in property development.
Partnership
Partnerships are two entities or two individuals who come together. You shouldn’t just use a partnership straight away because of liability issues.
It may be a good idea to use an already existing structure for you new business. IT can save a lot of time and money to do this. But not always! It really depends on what the new business is and whether the existing structure will work.
If you are buying a franchise there are many things you want to get right. There are a lot of benefits to buying into a franchise but there are risks. There are many shady operators out there so you have to choose correctly. Make sure the franchisor has a good manual that clearly details every aspect of the business. A good manual indicates that the business is being run correctly. In Australia there is something called the Franchise Code of Conduct. This legislation regulates things like what needs to be disclosed and the expectations of the ongoing relationship. The whole point of the code is to ensure that everyone acts in good faith. The franchiser has to give a disclosure statement before the signing of the agreement.
If you start a business you’re going to need insurance. It’s a good idea to hire an insurance broker not only because they know what you will need but they can help if you ever need to make a claim. There are five types of insurance that you may need.
- General liability insurance
- Product liability insurance
- Professional liability insurance
- Workers compensation insurance
- Business interruption insurance
Regulations are a part of any business. There is a lot of red tape out there. It’s there to protect consumers and businesses but they can be onerous. You need to be regulatory compliant or you risk losing a lot of money from fines. It’s really hard to understand all the regulations so you need help. Your first call should be to a lawyer or a mentor who understands your industry.
You have to pay tax. But you want to make sure you are paying the right amount. The tax office will come after you for lack of payment. You risk the future of your business of you ignore your tax obligations.
More about this Show
We started Business Legal Lifecycle to create a simple way for you to understand complex legal terms. Most importantly we want to help you to develop a plan to take your business successfully into the future. There’s a startling statistic the underscores the importance of developing a solid plan. The majority of business owners are just seven months away from losing everything. A single aspect of your business that is not set-up correctly can shut down your whole operation very quickly. Legal advice is not cheap and even when you can afford it there is often a divide between lawyers and their clients. We want to close that gap once and for all. We want to put legal knowledge and tools into your hand to prevent the worst from happening to you.
Twice a week we are going to deliver those tools right to your home or office with Business Legal Lifecycle TV. We’ll start the week with Fast Fix Monday, a short 5-10 minute video that will tackle a single issue that businesses have to deal with. Then on Wednesday’s our main show will feature with more fulsome discussions and interviews all delivered in a straightforward and easy to understand format.
