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With the release of the new “innovation” package by the Federal Government, an increasing amount of people are considering starting up a new business.  However, before you get too carried away, it’s important to ensure you stay on the right side of the law.

Here are my 5 top legal tips for any start up:

1.  Make it clear

If your new business involves other partners, make sure you are clear on the terms on which every person is entering and get it down in writing in a formal agreement. Failing to do this can cause enormous problems later on (E.g. the Zuckerberg/Winklevoss Facebook litigation). In a way, think of the founder agreement as a form of “pre-nuptial agreement.”

2.  Decide on the legal structure

Ensure you consider the legal structure of business and understand the impact of that structure when it comes to employees, tax and decision making.

To start up a business in Australia you basically have three main choices: sole trader, partnership and company.  Each of these options has its own advantages and disadvantages. A sole trader is the simplest structure and is relatively easy to start and maintain. In this structure, there is no division between business assets and personal assets and all income is paid under the sole trader’s personal taxes.  The tax advantage of a sole trader is that any losses by the business can offset any income from the personal side

In partnership agreements, be aware that there is still a personal liability for the debts of the partnership, even if another partner incurred the business debt.  As a partnership is not a separate legal entity, the Partnership Acts contain important rules which specify how property belonging to the partnership is to be divided on the liquidation of the partnership.

A company structure sets you up for growth of the business. It can have unlimited number of people as shareholders. A company separates its business and personal assets as well as its taxes.  One of the biggest advantages of a company is that business liability does not affect personal assets.

3.  Contracts and Terms and Conditions

Regardless of the structure, every business should have a contract and terms and conditions in place for customers and clients. Make sure the documents are signed before commencing any work and be clear about what is, or is not included in the scope of any work.  Also ensure that any payment terms are clearly set out.

4.  Marketing before researching

When choosing a name for your company, make sure you do your research first in order to avoid trademark infringement or domain name problems. If the use of a trademark is likely to cause confusion among customers as to the source of the goods or services, you may be guilty of infringing on another businesses trademark.

5.  Not protecting the business

If you have developed a unique product, technology, or service, you need to consider the appropriate steps to protect your intellectual property.

About the author:

Katherine new picKatherine Hawes is a Sydney-based lawyer and the founder of www.newagelegalsolutions.com.au

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Katherine Hawes

Katherine Hawes

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