Commercial & Business Law
Business owners and directors face many legal challenges and opportunities when setting up, operating, growing, or selling their enterprise. We work with many business clients and can discuss your individual circumstances to tailor solutions for the many planned and unplanned events that occur throughout the life of your business.
It is important to understand the different legal structures through which you can run your business operations, and the pros and cons of each. Choosing the right structure is usually determined by matters such as the size of the business, whether there are co-owners, your individual circumstances, your plans for growth, and the industry in which your business will operate. Typical business structures in Australia include:
Sole trader – you operate the business in your own name or through a registered business name and are the sole person legally responsible for the operations of the business. Being a sole trader can be cost-effective, particularly when starting out. Consider however that all income will be treated as personal income and taxed at the relevant personal income tax rates and your personal liability will not be limited in any way – you will be solely responsible for all debts and liabilities of the business.
Partnerships – a partnership is a relationship between two or more people carrying on a business, with a common view of making a profit. Partnerships are relatively simple structures to set up and are popular for family businesses. A potential downside of a partnership is that ordinarily each partner will have unlimited liability for any debts incurred by the partnership.
A partnership agreement is critical to govern how the partnership operates and to determine matters such as management, resources, profit sharing, succession planning and provisions for the resolution of disputes.
Company – a registered company is a separate legal entity to any shareholders of the company and is generally appropriate for small-medium sized businesses and / or if growth is envisaged. Income is earned by the company and not the individuals which can potentially result in a more beneficial tax rate than if earnings are classified as personal income.
Companies are regulated by the Australian Securities and Investment Commission (ASIC). Company directors have a range statutory and common law duties and must ensure they fulfil certain reporting requirements.
Trusts – a trust holds property or income for the benefit of others and can be used to minimise individual risk and enable business income to be distributed to a number of individuals or entities. In recent years, trusts have been subject to ATO scrutiny and it is important that any trust structure is properly established and appropriately managed on an ongoing basis.
We can advise you in relation to these and other business models and can work closely with both you and your accountant/financial adviser to determine the most appropriate business structure for your needs.
Buying A business
Undertaking due diligence involves a number of measures to protect your interests and ensure you are getting what you have bargained for during your negotiations. It can encompass such things as investigating the vendor entity, reviewing the sales history, consideration of financial records including profit and loss statements, completing an inventory of all assets and liabilities, and interviewing key personnel. If necessary, we can work with your financial advisor to assist with your due diligence.
The contract for sale of business should be in writing and include all agreed terms and conditions with details such as the correct entities of the parties, the purchase price and its apportionment, plant, equipment, stock and inventory, GST matters, employment matters (if relevant), training periods and restraint provisions. The contract must include all incidental agreements forming part of the sale and business operations, for example, commercial leases and service agreements.
We can advise and guide you through the entire process of buying a business, from initial negotiations through to completion. We can also assist with the calculation and payment of stamp duty (if relevant), registration of your business name, and lodgement of any documents for registration such as commercial leases.
Selling A Business
When selling a business, it is important to get early professional advice to ensure that the objectives of the sale are achieved, and that the matter proceeds smoothly. There are many things to consider, including:
- The structure of the sale – whether the sale involves the transfer of shares for part of the business, or if it is an outright purchase of the entire business.
- Preparation of the sale contract, and other documents such as a confidentiality deed to protect your intellectual property before entering into negotiations with prospective purchasers.
- Calculation and apportionment of the purchase price and preparing a list of plant, equipment and inventory forming part of the sale.
- Consideration of other inclusions such as the transfer of business name, domain name, intellectual property, and licences.
- Employment issues including whether existing employees are to be kept on by the incoming purchaser, and the liability for existing employee entitlements such as sick leave and annual leave.
- Property considerations including lease arrangements for the business premises.
- Taxation matters (including GST and capital gains tax) and stamp duty implications.
Commercial And Retail Leasing
A commercial lease agreement sets out the legal relationship between a lessor and lessee regarding the lessee’s right to occupy premises for its business operations. Commercial leases can be the subject of legal disputes which often occur due to poorly drafted, ambiguous, or non-existent lease agreements, and / or the failure of the parties to obtain independent legal advice and properly understand their rights and obligations under the lease.
Retail leases are commercial leases regulated by specific legislation which typically applies to premises within shopping centres or that are used wholly or predominantly for conducting a retail business. Retail leasing legislation aims to enhance consumer protection by stipulating minimum terms and conditions and limiting certain provisions that are deemed unreasonable for a lessee. The legislation also imposes certain disclosure obligations upon a lessor.
Lessors and lessees should obtain independent legal advice to ensure their negotiations are properly reflected in a lease agreement, and the provisions comply with any relevant legislation.