A business should be supported by appropriate professional advice to foster sustainability and growth, minimise disputes and to protect owners and directors from personal liability.
When starting a new venture or buying a business, it is important to operate through the most effective structure. Determining an appropriate business structure requires consideration of the parties’ personal and financial circumstances, the size and nature of the business, the regulatory environment within which the business operates, and the owners’ desire and strategies for future growth.
Common business structures include sole proprietorships, partnerships, trusts and incorporated companies. Each have their own pros and cons and vary in their complexity, reporting requirements, treatment of income tax and level of asset and personal protection for the owners.
Companies and directors’ liability
A company is an incorporated legal entity with the capacity to enter legally binding transactions in its own right. Companies are a popular choice for operating small to medium-sized businesses as they provide a certain level of protection to officers and directors from personal liability for the company’s debts.
When formed, one or more directors are appointed as authorised officers to conduct the company’s affairs. Directors hold a position of power and trust imposing on them several duties to act in the company’s best interests. Essentially, directors must:
- act honestly and make decisions based on what is right for the company as a whole;
- avoid conflicts of interest and not use their position for personal profit to the detriment of the company;
- exercise care and skill when performing their duties;
- prevent insolvent trading.
Company directors make many decisions and may confront situations that place them at risk of breaching these duties. When facing uncertainty, directors should seek urgent advice to clarify their position.
Insolvency arises when a company cannot pay its debts when they are due. Companies experiencing cashflow issues may have various options available however their officers should always consult a professional. Directors who allow a company that is facing insolvency to continue trading may be personally liable for the company’s debts and should seek urgent legal advice.
Businesses enter into various transactions during their lifetime. Commercial arrangements should be governed by a written contract setting out the agreement reached, the parties’ rights and responsibilities and other terms such as the scope of services or products to be provided, warranties and indemnities, and dispute resolution processes.
Contracts can vary considerably, from a single transaction for the sale of a product, to the ongoing provision of services over many months. The breadth of a contract will depend on the subject matter, its duration and the complexity of the transaction.
As technology continues to evolve it has become increasingly important to protect a business’s intellectual property – this comprises a range of valuable assets including brands, trademarks, designs, patents, plant breeders’ rights, trade secrets and confidential information.
Trademarks and patents can be protected through registration.
Copyright covers a broad category of original material and gives a creator exclusive rights to reproduce, publish, perform and commercially exploit the work. Although copyright subsists at the time an original work is created (and need not be registered) businesses should take additional steps to protect their work from infringement through contracts covering usage and licencing rights.
The need to recover a debt is an unfortunate but common situation experienced by many businesses. There are various ways to pursue an unpaid debt including the commencement of court proceedings or by serving a statutory demand if the debtor is a company. Choosing the most appropriate method is important to obtain effective results and avoid expensive mistakes.
Business owners and managers should have a sound understanding of their obligations when hiring and managing staff. An employment agreement is essential to set out the terms of service, remuneration and entitlements, and to provide clarity regarding the rights and responsibilities of each party.
Employment terms and working conditions must also comply with legislation, the National Employment Standards and any relevant awards.
A well-drafted contract places the parties on the same page from the start of the employment relationship and provides certainty regarding a range of matters.
We assist new and established businesses across various areas of law. We appreciate our business clients as primary decision-makers who should be well informed to make practical and strategic choices that balance the growth of their business with the mitigation of risk.