Business
Structuring

If you are starting a new business, it is vital to obtain advice at an early stage about the appropriate legal structure for that business.  Making the wrong choice at the beginning may give rise to avoidable problems as you operate and later dispose of your business.

Business structures usually include one or more of the following:

  • a sole trader
  • a partnership
  • a limited partnership
  • a company
  • a trust.

Matters to consider in structuring your business operations include:

  • the minimisation of personal risk
  • the most tax effective distribution of business profits
  • the protection of essential business assets
  • taking on new equity investors
  • raising finance
  • succession issues.

 

Legal advice for structuring a business

Should my business structure include a company?

Companies are very widely used in the operation of businesses in Australia.

From a risk point of view, a company has a separate legal existence distinct from its owners (the shareholders).  Shareholders are therefore not prima facie liable for the company’s debts.  However, if a shareholder is also a director, or has provided security for the company’s debts, he or she may be liable in those capacities.

A company structure, sometimes in conjunction with a trust,  can also be used to protect business assets by placing those assets in a company separate from the operating company, thus protecting them from trading risk. 

Generally, a corporate structure is a helpful structure for the growth of a business, as well as the full or partial transfer of the business.  Incoming equity investors can buy shares, thus precisely defining their share of the business operation. A transfer of shares also provides an easier mechanism for transferring ownership than a transfer of the underlying business assets, such as when assets are sold by a partnership or sole trader.

Having said that, a transfer of shares carries with it the prior risks, obligations and liabilities of the company, including potential legal actions and debts.

Many financiers actually require a corporate structure for various reasons, including the ease of dealing with a company as opposed to, for example, members of a partnership, and the obligations placed on directors under the Corporations Act.

From a succession point of view, a company continues to exist even if one or more of its shareholders or directors sells their shares, dies or leaves the company.  This means that ownership in the underlying assets can be transferred simply by transferring shares rather than the assets themselves, which may be numerous.

The tax position of companies needs to be taken into account, as there are differences in the tax treatment of capital gains in the hands of trusts, individuals and companies. There are also different tax rates that apply to companies and to individuals.

Business structuring advice

What risks do I have as a director of a company?

A director may:

  • be liable for debts incurred by the company at a time when the company itself is unable to pay those debts as they fall due;
  • be liable to compensate the company for any losses the company suffers from a breach of certain of the director’s duties to the company; and
  • be subject to civil and/or criminal penalties in such circumstances.

As a matter of commercial practice, a bank, trade creditor or anyone else providing finance or credit to a company may ask a director of the company:

  • for a personal guarantee of the company’s liabilities; and
  • for some form of security over the house or personal assets to secure the performance by the company of its obligations.

The director of a company may, for example, be asked by a bank to give a mortgage over their house to secure the company’s repayment of a loan. If the company does not repay the loan as agreed with the bank, the director may lose the house.

Advice for company directors

Our Business and Commercial Lawyers

Michael Perkins Principal Lawyer

Michael Perkins

Lawyer, author, educator

Michael Perkins, Co-Founder and Principal Lawyer Dip Law SAB, TEP, MICW has over 30 years’ experience of in resolving complexities for clients managing their family and business interests. While many professionals manage and deliver transactions for clients, Michael provides additional support with resolving broader complexity and conflict in the lives of his clients, where possible without resorting to litigation or other dispute resolution processes.

He helps clients deal with the practical, strategic and operational needs of their businesses, conservation of their assets, activating community and philanthropic interests and planning for succession to their estate over time.

Michael applies a multidisciplinary approach in dealing with the challenges of achieving growth, asset protection, estate governance and succession. Methodologies finessed with experience are applied, paving a way forward for globalising businesses as well as families making plans to manage their wealth for the benefit of subsequent generations.

Jeremy Duffy Autonomy First

Jeremy Duffy

Experienced business lawyer

Based in South Australia, Jeremy Duffy has over three decades of experience in practice including property law and commercial transactions.

Jeremy’s clients over the years have included corporates, banks, property developers/managers, financial advisory firms, representative bodies and private clients.

Clarence Leung Chi Chiu Leung

Clarence Leung

 (Chi Chiu Leung)

Clarence Leung LL.B, LL.M (London); Diploma in Law (Sydney); TEP is a senior lawyer with over two decades of experience in trusts, commercial law, property law, litigation and migration law.

Proficiently tri-lingual, Clarence is an experienced Private Client lawyer who is skilled in working with clients of diverse backgrounds and has extensive knowledge of business dynamics and trade practices. He has acted in or advised on disputed matters for clients with an Asian background including Singapore, Malaysia, South Korea, Taiwan, Hong Kong and mainland China.

Trusts disputes and Litigation – Clarence has represented large-scale international companies in Trade Practice and fraudulent activity matters. He has represented individual clients in relation to caveats, partnership disputes, contested estates and injunctions.

Commercial Law – Clarence helps clients deal with their wealth preservation and succession objectives for their commercial enterprises. He works for a diverse range of manufacturing distribution and retail market-focused businesses. Clarence also helps his clients deal with the legal issues that flow from the operations, management, planning and decision making processes as well as ownership of their commercial enterprises.

Zabina Naem, Associate Lawyer

Zabina Naem

Associate Lawyer

Zabina Naem can support your business in areas including Trust Law and Property Law. She has strong practical knowledge in:

  • Advising on business succession planning.
  • Advising on tax implications in estate planning and property law such as stamp duty concessions, land tax and capital gains tax.
  • Assisting clients with residential and commercial conveyancing.
  • Advising on the succession of discretionary trusts and self-managed superfunds.
  • Drafting and settling discretionary trusts.

As a fluent Hindi speaker, Zabina has the capacity to assist clients from the Indian community.

Let’s talk.

To make an appointment, simply call 1300 31 42 82 or email enquiry@autonomyfirst.com