You have to decide on a legal structure when you start your business
The main choices are:
– sole trader (also called a “single proprietor”);
– trust; or
How to decide?
To decide on the best structure, you should think about:
– what sort of business you will establish;
– the expected income;
– the tax structure and how the business income will affect any personal income you have;
– what sort of personal liability you will have or are prepared to have;
– whether the nature of the business is risky and may be attacked by predators;
– whether asset protection will be an issue;
– the value of the business’s assets;
– capital gains tax, if the business may be sold at a later date;
– who are the owners of the business and their shared rights and obligations;
– whether you will use your own name for the business or use a trading name.
Ultimately, you need legal and accounting advice about this to make sure you start on the right foot. This can involve complicated issues and may need proper planning.
Before you spend all your money, make sure you have:
– taken into account all the potential costs, including any government costs and the fittings;
– a realistic idea of the other financial needs of your business, particularly in the early days when it may have to – be subsidised by your own savings or borrowings;
– properly researched the cost of finance;
– an idea of the other costs of running the business, for instance, the cost of utilities and insurance;
– costs of hiring and maintaining the staff;
– enough money to maintain your lifestyle until the business is self-supporting;
– a budget plan and a marketing plan;
– understand any legal obligations that may be relevant to the business, e.g. company or tax reporting requirements;
– checked with the local council that your business can be operated in the location you intend;
– researched whether there are any employer or retail associations who can help before you begin;
– checked whether there are any government grants on offer for the establishment of your business; and
– researched any technological innovations that could help (or harm with competition) your business;
– a coherent business strategy, and an effective strategic plan that anticipates opportunities and problems – and then plan for them.
Choosing a business name
If you don’t use your, or your partner’s, first name and surname, or initials and surname, you will have to register a business name. If you want to set up your business in more than one State, you need to register your business name separately in each State.
If you will be a sole trader, a partnership or a trust, but not a company, then you are required to register your business name in the state or territory in which you will operate (the www.business.gov.au site will take you to the appropriate agency).
The first step is to choose a name. Remember, a business name will not be registered in certain circumstances, for example:
– it is being used by another business;
– it offends public notions of decency, e.g. it is obscene;
– it might be confused with an already existing business etc.
If you want to check that the name you have chosen is not already taken, have look at the Australian Securities and Investments Commission website – which shows all registered Australian names – company names, business names in every State and Territory of Australia.
This is called the “National Names Index”.
Registering a business name
You can either do this yourself at the Government Department responsible for business names, or there are private businesses which will provide this service for a fee.
You must Search IP Australia’s trade marks databases at www.ipaustralia.gov.au to check whether your proposed business name is not the same as one already being used as a trade mark.
The normal steps are:
– Fill in the application form with the basic details of the business, e.g. the address of the business, the names and addresses of the owners and the proposed name of the business.
– Pay the fee.
If the name is available it will be registered and you will be sent a certificate.
There are more formal rules for registering a company – we cover these in another fact sheet.
A business plan
This is a good way to look at the potential of your business. Its functions include:
– testing the feasibility of ideas you have for the business;
– having a document to present to prospective financiers (eg a bank) when applying for a loan or other finance. This is usually necessary before the bank will consider offering you a loan;
– setting out the goals and objectives of the business which will be used to measure the performance of the operation;
assessing the likely profit to cover loan repayments, income tax, wages etc.
Starting a business plan
– gather the relevant material that will provide information on the product and the market;
– analyse that information;
– design a strategy to market the product, advertising, finances, sales forecast, budgets, suppliers etc;
– collate it into a coherent plan.
Many people develop this plan with their accountant. Alternatively, there is software available which you can use to put a plan together. You may then want to run it past an accountant.
Note if you are leasing retail premises, a business plan is now essential – for more information see our Leasing Premises and Equipment fact sheet.