Before you proceed in Phase 1 Conception you need to have an idea of what you are doing and what legal steps are required for the different was to start a business.
In Show 022 – What are you Doing? was originally broadcast on Facebook Live on Wednesday 11 October 2017 in which we explore this interesting topic.
We continue our discussion of Phase 1: Conception by asking a simple question: What are you doing? If you don’t know where you’re going you’re never going to get there. Setting goals is the key to achieving great results with your business. Very few people start their business with the end already in mind. You don’t need to know exactly where you’re going. But you should have a few key concepts figured out. Those include:
What are you going to call yourself? Does anyone else have that name? Is it trademarked elsewhere? You need to get the answers to those questions before you begin to setup your firm. You also need to have a name for your company and your legal entity. They are not the same thing and you need to know the difference.
Buying a new Business
When you do a business purchase it allows you to structure yourself in such a way that you can sell various parts of business without selling the whole company. If you run a real estate company you would be able to sell the sales part of the business while keeping other parts. There are advantages and disadvantages to this but having a business as a separate entity allows you to slice off parts of the company when you want to.
Share Purchase allows others to take a stake in your company. If you have several businesses operating under one legal entity the investor will be able to take a position in all of those businesses. There are some disadvantages which include the investor having to take on all the liability of the business.
This is similar to a Share Purchase but it differs in a few ways. If 100 shares already exist for you company you could choose to issue additional shares. You might want to do this for tax reasons. There are lots of complicated rules around this and in future episodes we will go into greater detail about how this works.
Setting up a new business
Before you put out your shingle you need to have the proper structures in place. This is where you are going to rely on your lawyer, accountant and business advisor. Some of those structures include.
When you have your business in a separate entity it helps protect you from liability. If something goes wrong with that business without a company you will be on the hook for those debts. That’s way too big a risk. Yes, it costs more at the start but setting up a company could save you a lot of money in the long run.
Discretionary family trusts
A trust is structured with the Trustee at the top of the pyramid. There are also beneficiaries of the trust and an Appointee who has the power to appoint a new Trustee. The Trustee owns the business and there are tax benefits and risk protection elements to structuring your business in this way.
A unit trust is set up very similarly to a discretionary trust. Like a company its unit holders are entitled to a percentage of the businesses income. A unit trust does not have an individuals as the trustee. Rather, a separate company is created to carry out that role.
A partnership agreement allows for equal management and ownership of your business. There are liability issues with partnerships as well. They are not as popular as they used to be but partnerships are still the best structure to use for certain industries.
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.