At the end of 2019, Australia had over 2.3 million businesses actively trading in the Australian economy. For a nation of 23 million, that is an encouraging number of entrepreneurs and innovators! If you are looking to start your own business, this article answers three frequently asked questions about business structuring, Intellectual Property protection and which online legal documents you will need.
How Should I Structure My Business?
The simplest business structure is operating as a sole trader where you trade as an individual rather than an incorporated company. The table below sets out the advantages and disadvantages of this structure.
Low start-up costs. You will need an Australian Business Number (ABN) and Tax File Number to start trading. Applying for an ABN is free and can be done online.
|None. This gives you more money to invest back into your business.|
|Liability||None.||The liability of a sole trader is unlimited. This means you are personally responsible for any liabilities your business incurs. Your personal assets, like your house, may be up for grabs if your business runs into trouble.|
|Control||You have complete ownership and control over the business.||None.|
|Tax||This depends on your personal circumstances. The Australian Tax Office treats business income as personal income, and you pay income tax at your nominal rate.||You are personally liable for all tax on your business’ income. You cannot share business profits and losses with family or friends.|
|Administrative Requirements||You do not need to pay to register a business name as you do not need one (i.e. you can use your personal name to trade). You do not need a separate business bank account, but the law requires that you hold onto your financial records for at least five years.||None.|
As your business grows, you can change your structure from a sole trader to a company relatively easily. You can do this by lodging an application through the Australian Securities and Investments Commission (ASIC) to register your company. The primary benefit of a company includes limited liability. Hence, your personal assets are separate from your business assets.
Should I Register a Trade Mark?
If you are not trading under your personal name, you need to register a business name. You can do so online with ASIC. However, registration does not give you exclusive rights to use the name. The best way to obtain this exclusive right to use your business name is by registering a trade mark. This is done online with IP Australia.
A trade mark is a sign that distinguishes your goods or services from another person’s goods or services. You can register a trade mark for your business name, slogan or logo. IP Australia maintains a national register of trade marks, putting other traders on notice that you have the exclusive right to use a mark.
As your business grows, your business name and logo will become some of your most valuable assets. You should take steps to ensure that you can use these marks exclusively. The risk of not registering a trade mark is that another business may be able to register a similar mark and prevent you from registering your own.
Trade mark registration is a low-cost preventative action you can take early in your business. Trade mark registration costs are much less than the costs associated with trying to protect an unregistered trade mark or defending an infringement claim.
What Legal Documents Do I Need to Sell Online?
If you are offering goods or services online, you will also need legal documents to protect your business. These documents feature on your website.
Personal information is information that can be used to identify a person, whether true or not. Your business probably collects all sorts of personal information, such as:
- names and contact details;
- photographs and payment details; and
- information about browser session and location data.
- what personal information you collect;
- how you use that personal information;
- whether you will share the information with third parties;
- access to and correction of personal information; and
- storage and security.
- how people can use your website;
- what they can use the website for; and
- a disclaimer to limit your liability for the information on your website.
Terms and Conditions for Your Products/Services
You need an agreement that sets out the relationship between your customers and the business.
The type of agreement you will need is determined by what type of offering your business provides. The table below sets out a helpful guide on this.
|Services only||Client Agreement|
|Goods Only||Sales Terms and Conditions|
|Both Goods and Services||Business Terms and Conditions|
The purpose of the relevant legal document is to:
- identify what goods or services you will provide;
- explain how and when you are to be paid;
- protect your intellectual property; and
- limit your liability.
You also need to ensure that you are meeting your obligations under the Australian Consumer Law, which offers protections for consumers buying goods and services.
Operating as a sole trader is a cost-effective way to start a small business. It is essential to ensure that you protect your business and any intellectual property with the appropriate legal documents and register any trade marks.