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Chapter 10

Starting a
business

Chapter 10 | Starting a business


1.
2.
3.
4.
5.
6.

Preparation
Selecting a business structure
Licences and registration
Renting or buying the premises
Franchising
Opening for business

Preparation
Chapter 10
Starting a business

Preparation
Before a person starts trading, they
should:
do some research,
protect the IP,
prepare a plan,
raise some money, and
take out insurance.

Selecting a business
structure
Chapter 10
Starting a business

Business structures
When starting a new business one of the most
important legal questions a person will have to
answer for themselves is which business structure
they will adopt. A business structure is the legal form
of a business organisation.
The most common types of business structure are:
the sole trader,
the partnership , and
the company.
Note that these business structures are not mutually
exclusive. Two or more companies, for example, can
form a partnership.

Business structures

continued

The persons choice of business structure


will have important consequences in terms
of:
the ease and cost of setting up the
business,
their legal and financial liability,
the way they pay tax,
their ability to raise finance, and
their ongoing regulatory obligations.

Sole trader
A person is a sole trader if they directly own
and operate the business by themselves.
A sole trader:
may engage employees but they are the
sole owner of the business,
has sole responsibility for raising the funds
to start the business,
has sole control over the operation of the
business, and
is entitled to all of the profits of the business.

Sole trader

continued

The sole trader has unlimited personal


liability for the debts and other legal
obligations of the business.
There are no formal legal requirements
that need to be satisfied to establish this
type of business structure.

Partnership
A person is a partner in a partnership if they
and at least one other person directly own
and operate a business together.
Mutual liability: Each partner is both the
principal and the agent of the other
partners.
Each partner has unlimited personal liability
for the debts of the partnership.
Partnerships are regulated by State/Territory
partnership legislation.

Partnership

continued

There are no formal steps that need to be


taken to form a partnership.
A partnership is the relation which
subsists between persons carrying on a
business in common with a view of profit.
If each of the elements of this definition is
satisfied a partnership has been formed.

Partnership

continued

Persons: There can be no more than 20 partners


(subject to certain exceptions).
Carrying on a business: There must be some
continuity or repetition of trading activities.
In common: Each person must be acting on
behalf of the others as well as on their own
behalf.
With a view of profit: If the persons are
carrying on a business together for a non-profit
purpose they will have formed an unincorporated
association rather than a partnership.

Partnership

continued

The relationship between partners is a


contractual one. The terms of the contract are
set out in the partnership agreement which
may be:
a formal written document,
partly in writing and partly oral, or
wholly or partly implied from the conduct of
the partners.
A written partnership agreement is not essential
to the existence of a partnership, but it is
nevertheless a very good idea to have one.

Partnership

continued

A written partnership agreement should set out:


The names of the partners and the name of the
partnership
The nature of the business
The term of the partnership
Each partners contribution
Sharing of profits and losses
Authority of partners
Decision-making
Duties and obligations
Admitting new partners
Withdrawal or death of a partner
Dispute resolution

Company
A corporation is an artificial legal person
separate from its owners and able to make
contracts, own property and be a party to
litigation in its own name.
A company is a type of corporation; one
incorporated under and regulated by the
Corporations Act 2001 (Cth).

Types of corporation

Figure 10.2

Company

continued

A company is created by registration by the


Australian Securities and Investments Commission
(ASIC).
A company must have:
at least one owner or member (usually called a
shareholder), and
at least one director, who is responsible for
managing the companys business.
It is possible for the director and the shareholder to
be the same person, although in larger companies
there is a separation of ownership and control.

Company

continued

Separate legal personality: A company:


can incur debts in its own name,
can hold property in its own name,
can be the plaintiff or the defendant in legal
proceedings,
continues unchanged even if the owners sell it to
another person, and
can enter into legal relationships with the owners.
Limited liability: The owners are not liable for any
debts or other obligations of the company beyond
the subscription price of their shares.

Proprietary and public companies

Figure 10.3

Licences and registration


Chapter 10
Starting a business

Registering the business name


Unless a business owner proposes to carry on
business under their own name (including their
surname and first name, or surname and initials)
they must register their business name in each
State and Territory in which they propose to carry
on business.
This requirement applies to sole traders and
partnerships. If the business owner chooses to use
a company and proposes to carry on business
under a name different to the registered name of
the company, the business name must be
registered.

Registering the business name

continued

The purpose of requiring registration of a


business name is not to protect the business
owners interest in the name but to protect the
public by:
making the identity of the person or company
behind the business name publicly available
and identifiable in the event of a problem,
and
avoiding the potentially misleading situation
of having two businesses with the same
business name.

Complying with licensing requirements


A business may require one or more
licences from the relevant Federal, State
or Local government body.

Renting or buying the


premises
Chapter 10
Starting a business

Buying the premises


The process of acquiring ownership of real
property is called the conveyance.

Buying the premises


1.
2.
3.
4.

5.

6.

Locate the property.


Approach the selling agent and
inspect the property.
Make an offer for the property,
and negotiate a price.
Once a price has been agreed
upon with the vendor, receive
the contract (likely to be in the
standard form) from the selling
agent. Sign the contract and
return it to the selling agent.
Pay the deposit (usually 5% or
10% of the purchase price) .The
balance of the purchase price
will be payable on the
settlement date, usually 30 or 60
days after the date of the
contract.
Arrange finance and/or building
inspection and/or pest
inspection.

7.

continued

Check the details of the


property on the register of
titles.
8. Determine whether the local
authority or any government
body has any proposals or
outstanding requirements in
relation to the property.
9. Check that the transfer
documents are prepared
correctly by the vendor, sign
them, and attend to their
assessment for stamp duty.
10. Attend settlement and hand
over the balance of the
purchase price in exchange for
the title documents.
11. Inform the selling agent that
settlement has taken place,
and collect the keys.
12. Move in!

Buying the premises

continued

Under the old system of title, ownership is


established by chain of title; under the Torrens
system of title, ownership is established by
registration.
When a person purchases real property they
acquire:
the land,
the buildings, and
the fixtures (other than tenants fixtures).

Buying the premises

continued

Table 10.4

Leasing the premises


Most business lease (or
rent) their premises
rather than own them.
A lease is a contract
with the property owner
according to which the
property owner grants
the business owner
exclusive possession of
the leased property in
return for the payment
of rent and compliance
with other obligations in
the lease.

Leasing the premises

continued

Table 10.7

Franchising
Chapter 10
Starting a business

What is a franchise?
A franchise is a contractual arrangement with a
franchisor according to which the franchisor
permits the franchisee to:
use the franchisors business name and/or
trade mark,
manufacture or sell the franchisors products,
and/or
use the franchisors business system.
In return the franchisee pays to the franchisor a
regular fixed fee and/or a percentage of their
income or profits.

What is a franchise?
A key feature of the
franchise arrangement
is that the franchisor
and the franchisee are
(usually) not partners,
employer and
employee, or principal
and agent, but separate
contracting parties who
are generally not
responsible for each
others actions.

continued

The benefits of franchising


For the franchisor:
Growth of the franchise network is achieved
using the financial and labour resources of the
franchisee.
The franchisor need not be concerned with the
day-to-day operation of each franchise outlet.
The franchise network has the potential to
grow rapidly.
The manager of each outlet is the owner of the
business, and will therefore tend to be
motivated to be successful.

The benefits of franchising

continued

For the franchisee:


Joining an existing franchise is much less risky
than attempting to start a stand-alone
business.
The franchisor may provide detailed training.
The franchisee owns their own business.
The franchisee operates under the name and
established reputation of the franchisor.
The franchisee will usually need less capital.

The benefits of franchising

continued

For the franchisee:


The franchisor may provide advice in
identifying suitable trading locations.
The franchisee benefits from the franchisors
advertising and promotional activities.
The franchisee benefits from the bulk
purchasing power and negotiating capacity of
the franchisor.
The franchisee has access to a large
knowledge base.

Franchising code of conduct


The Franchising Code of Conduct seeks to ensure
that a franchisee is sufficiently informed about a
franchise before entering into it by:
imposing significant disclosure obligations on the
franchisor,
granting the franchisee a 7 day cooling off period,
and
prohibiting certain terms in the franchise
agreement, e.g. release of the franchisor from all
liability.
The Code also seeks to provide a cost-effective
dispute resolution scheme.

Opening for business


Chapter 10
Starting a business

Shop trading hours


Under the relevant State/Territory trading
hours legislation:
Monday to Saturday trading hours may
be restricted, and
Sunday trading may be prohibited
outside of major towns and tourist
precincts.

Setting up a website
A business can operate an online business
24 hours a day.
Domain name disputes can usually be
resolved without resorting to litigation by
using either the auDA or the WIPO dispute
resolution process.

Setting up a website

continued

The holder of a domain name must


surrender that domain name if:
the domain name is identical or
confusingly similar to a trade mark,
the domain name holder has no rights to
or legitimate interests on the name, and
the domain name has been registered
and is being used in bad faith.

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