Business Start Up Corner - Thinking Of Starting A Business?

Once you have had that ‘light bulb moment’ and come up with your brilliant idea for your new business you want to get started in a hurry. However, before you make any big financial commitment you want to make sure the concept has ‘legs’. A lot of people elect to establish their business under their own name or trade under a business name rather than establish a company or trust structure. Before you make your decision regarding the most appropriate business structure there are some key considerations.

It's a relatively simple process to register your business name with ASIC but from a legal and financial point of view there is a big difference between starting out under a business name and having a company structure. While there are a multitude of different options when it comes to business structures including sole trader, company, trust and partnership, whenever we provide advice on business structures we always look at other considerations including asset protection, the potential to admit new partners and eligibility for discount capital gains tax concessions. This is not the right forum to get technical so let’s just look at the major distinction between trading under a business name and operating as a company.

Firstly, the set up costs are a lot lower to register a business name. The national business name registration system allows you to register the name for one year for $33 or $76 for three years. In the past you were required to register the business name in each state where you planned to do business which was costly and time consuming. Now you only need to register once to be registered in all states and territories of Australia. You can register a business by going to the ASIC website (www.asic.gov.au) and clicking on the Business Names drop down menu.

While this sounds very simple you need to understand that it doesn’t necessarily give you exclusive rights to use the business name. Registering a business name with ASIC lets you trade under that name but someone else could come along and demand you change your business name if they have trademarked the name before you and you are conducting a similar type business.

Asset Protection

An incorporated company will cost more to register and operate but a company is regarded as a separate legal entity distinct from the business owner and can sue and be sued. It provides another layer of asset protection in the event of the business failing. This is a key consideration particularly in high risk industries like the building trades and manufacturing. With a business name you don’t get this protection because you are the legal entity that simply trades under a registered business name. If something goes wrong your personal assets are on the line.

On the other hand, a company structure means the creditors are restricted to the assets of the company. This means your home is safe (unless you have lodged it as a guarantee for a company loan). As a Company Director, you can still be liable and accountable for breaches of the law but generally speaking, your personal assets are safe from creditors. In terms of asset protection there are three steps you can take:

  1. Protect your business name and brand because it can be one of your most valuable assets. Don’t think that because you have registered your company name or business name with ASIC that it is protected against others using it for similar businesses. This is not the case and for true protection you need to consider registering the name as a ‘trademark’ with IP Australia (http://www.ipaustralia.gov.au).
  2. Protect your business with strong Terms and Conditions that can be listed on your website and on your quotes and contracts. These can provide some protection for your business to limit your liability but don’t risk copying them from another website or writing them yourself. There are plenty of online templates available that could prove invaluable.
  3. Insurance is designed to protect you from financial loss through things like accidents, stock damage, fire, theft and flood. We often talk through these options with clients starting a business and we urge you to do the same. Forewarned is forearmed and before you make your first sale they need to be in place.

Starting a business is a bit like a game of chess. You need to make the right opening moves and your business structure and issues like asset protection must be a priority.  If you’re looking to start a business talk to us today and we’ll help you navigate your way through the start-up maze of structures, registrations, asset protection, insurances and accounting software.


Click HERE to download the full edition of The Business Accelerator Magazine for June 2014.

Other articles in this edition:

IMPORTANT DISCLAIMER:This newsletter is issued as a guide to clients and for their private information. This newsletter does not constitute advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.