Founding a start-up is pretty exciting, but you have to make sure that you get it off the ground on the right foot. One of the most important things to consider at this early stage is its legal business structuring. Finalising your decision between operating as a sole trader under an Australian business number (ABN) or incorporating as a company will help you comply with regulations and tax obligations. You’ll also evaluate asset protection and liability risks, which differ between these structures.
Getting a full understanding of the legal business structure will apprise you of the essential things you need to fulfil. It will also equip you with a working knowledge of potential issues that can result in liability along the way.
Here’s what you need to know about determining which legal business structure is right for your start-up:
The Important Considerations on Structuring
Sole traders and companies have legal obligations. However, many entrepreneurs are under the impression that a company protects them from all liability. While there are exceptions to the rule, the truth is that liability also applies to the company.
Registered companies enjoy tax benefits when trading. However, sole traders do not. If you decide to register as a company, these tax benefits may apply to your start-up. Nevertheless, seeking proper guidance about this is crucial to making an informed decision.
Another essential aspect to consider about structuring is that all Australian companies must have at least one company director that resides within the country.
Registering Your Start-up
If you decide that registering your start-up as a company is the best option, you’ll have to decide on more than just a company name. It would be best if you determined who the officeholders will be, which consists of a director and secretary.
You’ll also have to figure out who the shareholders will be and the restrictions for new admissions. Establishing their rights through a shareholder’s agreement is incredibly important, as it will determine whether or not each shareholder has the prerogative to appoint a director. Creating a company constitution that aligns with your shareholders’ agreement will also ensure that things are seamless and in proper working order.
Having these legal documents may also protect you in case a shareholder or director decides to exit. Ensuring your protection through developing an exit strategy is crucial and must be done when your relationship with the involved parties is positive and productive.
Legal Documents to Keep In Mind
Another essential element in your legal business structure is the pertinent legal documents. These are usually required by start-ups and contribute to a stable company foundation. They also offer guidance should conflict arise.
The most common legal documents your start-up needs are employment or contractor contracts, the terms and conditions of trade, and loan agreements. Employment contracts delineate responsibilities and terms of the engagement. The terms and conditions of trade will protect your rights and limit potential liabilities. Meanwhile, loan agreements are often drafted for shareholders and their relatives, which cover the provision of seed money to support your start-up.
Understanding the possible legal business structures for your start-up is incredibly essential. It will provide you with a sound starting point and enable you to make the best decisions for it. Your start-up is the culmination of your innovative ideas and your ambition; by being aware of the requirements, you’ll ensure that your company is in good standing at all times.
Looking for corporate lawyers in Brisbane to help you decide on a legal business structure for your start-up? Let us know at GLG Law. We are a law firm in Queensland with leading commercial law experts that specialise in commercial and property law, franchising, IP, conveyancing, not-for-profit, and family law. We deliver our legal services with our clients at the forefront of our mind. Contact us today to find the right solutions for your legal needs.