Planning to do business - legal preparation is crucial!
Author:
Rockliffs Solicitors and IP Lawyers
Publish Date: May 23, 2007
Many individuals rush into business with great ideas and full of enthusiasm wanting to use those ideas to commence their business sooner rather than later.
Often, those businesses involve numerous people and large sums of money!
However, many of those business participants don’t think about the legal ramifications that arise of getting themselves involved in business with one another.
There are serious legal implications in forming a business and it is important that the legal arrangements between the parties involved are formalised by a written agreement depending on the nature of the legal relations involved.
You may use a company structure as a “vehicle” for doing business. If so, there are significant obligations under Australia company law for directors of companies to adhere to.
Further still, the members (i.e. shareholders) of that private company need to understand what are the implications of getting involved in such a business and what obligations and rights they have as shareholders in the company.
What if they decide to later sell their shares, how is that achieved? What is the worth of those shares?
After all, they are often investing their money as capital contributions to get the business off the ground.
So what are some of the business structures that you can use?
1. You may wish to trade solely, as a “sole trader”, where you personally are the business, thus being personally liable for the debts of the business.
2. You may wish to go into partnership with one or more individuals, where this type of business relationship is governed by state law and creates certain obligations and responsibilities between the parties. Each being liable together and separately for the debts of the partnership.
3. Alternatively, you may wish to incorporate a company and become a director of that company (of which there can be many) and also be a shareholder of that company. There are strict legal obligations for being a company director under Australian company law and this is a most serious undertaking. Companies though offer (in most but not every instance) protection in the sense that it is the company as a legal “person” that is liable for its debts and obligations, as opposed to the directors and shareholders themselves.
4. Other types of legal arrangements exist such as “joint ventures”, which of itself is not a legal entity, but rather an arrangement by contract between two of more parties, to normally undertake a single purpose or activity.
Getting the legal documents right from the outset and trading using the best method for you is crucial in doing business and doing it well!
There may be many other considerations and this is not meant as an exhaustive list. This is not intended to act as legal advice and is merely provided as general assistance and not otherwise and should not be relied upon, as every circumstance is unique in nature.
For further information or assistance please contact Rockliffs on 02 9299 4912 or email us at lawyers@rockliffs.com.au