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Business Structure

Business Structure

Things To Consider

I often provide advice to clients who are just going into business. It is important to lay the right corporate foundation for your business before you actually start trading. There are many things to consider along that climb to successful trading.

Sole Proprietorship/Partnership And Business Names

Most businesses are operated as a sole proprietor arrangement or a partnership arrangement.

The first question will have to be ‘What business name do I register.’

When should I register a business name?

Carrying on a business or forming a partnership does not necessarily mean that the name or names must be registered as a business name. For example if you are John Smith and you just wish to trade as John Smith, then there is no need to register a business name. However if the business is not your usual name or if it involves any additional words, then a business name needs to be registered.

You have to be aware that when it comes to business names, each State and Territory has its own Business Names legislation. Names requiring registration must be registered in each State in which the business is carried on. Therefore if you register the name “ABC Traders” in Western Australia, it only allows you exclusive use of that trading name in Western Australia.

If you carry on business under a name that is not registered, you are in breach of the Business Names Act and will be liable for a $200 fine.

What name do I use?

You should always check carefully that the name you wish to use is original. The Registry of Businesses has a Computerised List of all names currently registered in Australia and is available for inspection at the Business Names Branch.

You should not incur expenses (print business cards, letterheads etc) with respect to a business name until such time as you have confirmed availability and booked the name.

How long is the registered business name valid for?

The registration of a business name remains in force for a period of three years. It may be renewed at any time within the period of one (1 ) month before and one (1 ) month after the expiration of the registration.

It is important that you keep tabs on the renewal date lines. Failure to re-register the name may result in some other persons registering the name for their own use.
What other alternatives are there to using a business name?

You should speak to a lawyer and an accountant to find out if just using a business name is the right business structure for your purposes.

Lawyers will look at it from a legal perspective. The biggest concern about trading under a business name is that you become personally liable for the debts of the business. That means if the business fails, the creditors can pursue you by getting court orders to sell your personal assets.

For this reason, it is sometimes safer to use a company structure. Your accountant’s advice should be sought before you register either a business name or a proprietary limited company (“Pty Ltd structure”).

Benefits Of Using A Proprietary Limited Company Structure.

It is now possible to incorporate a Pty Ltd structure with one shareholder and one director. It is basically a legal fiction allowed by the law that a Pty Ltd structure can operate with one director and one shareholder. We say it is a legal fiction in that the director holds a meeting with himself when decisions are made by the Board of the Pty Ltd Company.

One of the main benefits is that there is limited personal liability if you use the Pty Ltd structure. That means if the Pty Ltd company fails, the creditors usually cannot sue the shareholders or directors personally.

There are certain circumstances where the directors can be sued personally for the debts of a Pty Ltd company. For example:

  1. Where the directors give personal guarantees to the creditors.
  2. Where the creditors can show that the directors were trading while the Pty Ltd company was insolvent and was unable to pay its debts.
  3. Tax liabilities.

You should speak to your accountant or lawyer if you are considering changing over from a sole proprietorship or partnership using a business name to that of a Pty Ltd structure.

The duties of directors and or shareholders are numerous and should be carefully considered when a Pty Ltd company is set up. One of the most commonly overlooked requirement include:

The all important ACN

Under the Corporations Act 2001, every company in Australia is issued with a unique, nine-digit number, an Australian Company Number (ACN), which must be shown on a range of documents.

The purpose of the ACN is to ensure adequate identification of companies when transacting business. New companies are issued with numbers by the Australian Securities & Investments Commission (ASIC) upon registration.
Where the ACN must appear?

This is where I am often surprised by clients as the following requirements are often overlooked.

A company’s ACN should appear on all of its ‘public documents’ and ‘eligible negotiable instruments’ [s.153]. The items on which it should appear include:

  • all documents required to be lodged with ASIC;
  • statements of account, including invoices;
  • business letterheads;
  • official company notices;
  • cheques, promissory notes and bills of exchange; and
  • receipts which are not machine-produced;
  • all orders for goods and services;
  • any written advertisements making a specific offer which is capable of being accepted (such as by the completion of an order form).

If a company’s name appears on two or more pages of a document or instrument, the ACN must be shown on the first of those pages following the company’s name. Where a number of separate companies are listed on a document (eg, a letterhead) the ACN of each should appear and in such a way that makes clear the company to which each ACN relates.

While there are no specific requirements as to how an ACN should appear on a document, it should be clear, easily readable, and obvious as to the company to which it relates. The ACN should be identified by the words ‘Australian Company Number’, or by the abbreviations ‘ACN’ or ‘A.C.N.’.

Where the ACN is not required

The items on which the ACN is not required include:

  • packaging and labelling, including envelopes and transport documents;
  • credit cards and credit card vouchers;
  • machine-generated receipts, including cash-register receipts;
  • business cards and ‘with compliments’ slips; and advertisements which do not make a specific offer which is capable of being accepted (such as advertisements which only promote the company and its goods or services in general);
  • items which are not documents (eg, vehicles, television advertisements).

Penalties

The penalty for non-compliance with the ACN provision of the Corporations Act 2001 (section 153) is $1,100 or three months imprisonment, or both.

Common seal

Most Companies has a Common seal. However the law has now been changed so that there may not be a need for a Common seal. A Pty Ltd company may have a common seal, and then use it to execute documents in accordance with its constitution. If a company does have a common seal, it must set out the following information:

  1. for a company that has its Australian Company Number (ACN) as its name – the company’s ACN; or
  2. otherwise the company’s name, the expression “Australian Company Number” and the company’s – ACN.

Australian Business Number

Under current tax legislation, all businesses should have an Australian Business Number (ABN). You may use the ABN with your company’s name in place of the ACN on company documents and negotiable instruments, provided that:

  • your ABN includes your nine digit ACN; and
  • the quotation of the ABN is effected in the same manner in which quotation of the ACN would normally occur. (For example, a company is required to place its ACN with its name on the first page where that name appears in a document)

What Happens If I Register A Business Name Or A Pty Ltd Company?

What Rights Or Protection Do I Get?

The business name or the Pty Ltd company registration does not give you protection of your proprietary and intellectual property interest.

The Business Names legislation and the Australian Securities and Investment Commission is concerned with the establishment of a public register of business and Pty Ltd company names and their particulars. They are not concerned with conferring rights or protection in respect of such a name. You should, after deciding on a business name or a Pty Ltd company, conduct a thorough search of the Trade Marks register to make sure that the business name or the Pty Ltd Company name is not similar to any registered mark.

Business names and Pty Ltd company names are best protected from exploitation when they are registered trade marks. On the other hand, your new business name or Pty Ltd company name may infringe a registered trade mark. Be sure to search the trade mark database before registering a new business name or a Pty Ltd company name.

What Is A Trade Mark?

A trade mark can be a word, phrase, letter, number, sound, smell, shape, logo, picture, aspect of packaging or a combination of these. It is used to distinguish the goods and services of one trader from those of another.

A registered trade mark gives you the exclusive legal right to use, license or sell it within Australia for the goods and services for which it is registered.

Trade mark registration is not compulsory but it is advisable. There is protection against misrepresentation under the trade practices or fair trading legislation. It is also possible to take action under common law but this can be a time-consuming and expensive exercise.

Is there a difference between a trade mark and a business, Pty Ltd company or domain name?

Yes.

The difference between trade marks, business, Pty Ltd company and domain names sometimes causes confusion for both traders and the public.

A Pty Ltd company name or a registrable body must be registered under the national Corporations Law administered by the Australian Securities and Investments Commission. Once registered, it covers the whole of Australia. If a Pty Ltd company wishes to trade using a name other than the registered company name, it will be necessary for the company to register that name as a business name.

A business name is a name under which a business operates. Registration serves as a means of identifying the owners of the business and is obtained under state or territory legislation. Registration of a business name in any Australian state only gives you rights in respect of the particular state where the registration is made.

Where trading occurs in more than one state or territory, the business name must be registered under the laws of each one. Registration of a business name is compulsory and must be completed before the business starts trading.

A trade mark is used to distinguish the goods or services of one trader from those of other traders. Registration of a trade mark gives the registered owner exclusive use of the trade mark throughout Australia.

Registration Of A Business, Company Or Domain Name Does Not In Itself Give You Any Proprietary Rights-Only A Trade Mark Can Give You That Kind Of Protection.

The same word(s) may be registered by different people as business names and trade marks. However, the registered trade mark owner can sue the business owner for infringing the trade mark if the business name owner uses it on goods or services similar to those covered by the trade mark registration.

What About Domain Names?

In current times, besides deciding on the business name and the trade mark, a trader also has to consider the registration of a domain name to protect their intellectual property.

A domain name is a textual address for a location on the Internet that corresponds to the actual alpha numeric address which the Internet computers can read. The rules for registration of a dot.au domain used to be quite strict. Since 1st July 2002, the ability to register domain names under the dot.au category has been relaxed significantly. You should see http://www.melbourneit.com.au for the latest information on registration of domain names.

You can register your domain name as a trade mark as long as it meets the requirements of the Trade Marks Act 1995.

Currently, it is possible to register the following domains:

.com Available to any individuals, organisations or companies.
.net Available to any individuals, organisations or companies.
.org Available to any individuals, organisations or companies.
.info Available to any individuals, organisations or companies.
.biz Available to any individuals, organisations or companies.
.com.au For commercial purposes. Includes commercial entities, currently registered and trading in Australia, as well as commercial products and services.
.id.au For individuals.
.asn.au For ‘associations’. Includes associations incorporated under specific state legislation, some incorporated bodies, political parties, trade unions, sporting and special interest clubs and ‘partnerships’ between disparate organisations.
.net.au For commercial purposes. Includes commercial entities, currently registered and trading in Australia, as well as commercial products and services. Almost all of the domains in this domain type tend to be net/communications related.
.org.au For non-commercial purposes. Includes not-for-profit organisations, charities, churches, welfare groups etc.

You should consult an IT specialist and your lawyers regarding the protection of your internet intellectual properties. There are many cases where a trader forgets to register a domain name to protect their business names. There are cyber squatters in cyberspace. These cyber squatters check to see if your business name is registered as a domain name. If it is not, they quickly register the domain name and then offer the domain name to your business later at a price.

There are many things to consider when going into business. Always get legal advice to ensure you do not make an expensive mistake.

On the lighter side

  • An airliner was having engine trouble, and the pilot instructed the cabin crew to have the passengers take their seats and get prepared for an emergency landing.A few minutes later, the pilot asked the flight attendants if everyone was buckled in and ready.”All set back here, Captain,” came the reply, “except one lawyer who is still going around passing out business cards.”
  • A truck driver would amuse himself by running over lawyers. Whenever he saw a lawyer walking down the side of the road he would swerve to hit him, enjoy the load, satisfying “THUMP”, and then swerve back onto the road.(at this point some of you are probably wondering how the trucker could distinguish the lawyers from the humans. Obviously he saw the trail of slime they left!)

    One day, as the truck driver was driving along he saw a priest hitchhiking. He thought he would do a good turn and pulled the truck over.

    He asked the priest, “Where are you going, Father?”

    “I’m going to the church 5 miles down the road,” replied the priest.

    “No problem, Father! I’ll give you a lift. Climb in the truck.” The happy priest climbed into the passenger seat and the truck driver continued down the road.

    Suddenly the truck driver saw a lawyer walking down the road and instinctively he swerved to hit him. But then he remembered there was a priest in the truck with him, so at the last minute he swerved back away, narrowly missing the lawyer. However even though he was certain he missed the lawyer, he still heard a loud “THUD”. Not understanding where the noise came from he glanced in his mirrors and when he didn’t see anything, he turned to the priest and said, “I’m sorry Father. I almost hit that lawyer.”

    “That’s okay”, replied the priest. “I got him with the door!”