I’m sure you’ve heard the expression, “fail to plan, plan to fail.”? Well, I failed to plan for a few things in my business initially, and sure enough got my fingers burnt… a couple of times.
When I started out I thought to myself, “I’m smart, I’m going to play it by ear and see how things go, I’ve got this!” Little did I know what a huge mistake that was.
After my whole ‘ordeal’, I couldn’t help but think of something my mother always used to say; “we pay expensive school-fees in life” and boy was she right! (Always listen to your mother people, she definitely knows best!)
If you are planning to start your own business, no matter how big or small, other than a well thought out and constructed business plan, an accurate and well put together (with some added legal advice from a trusted lawyer) company structure is vital.
Not only for your business’ profit and sustainability, but also to prevent what happened to me, from happening to you… you guessed it, I was sued.
If you’re anything like me, I believe in honesty, I take people at their word, to me, your word is your honor. Unfortunately, I had to learn the hard way, that in business, this is not always the case.
After a verbal ‘gentleman’s agreement’ was reached regarding a service to a customer, the customer sued me for not delivering on what was promised, even though myself and my team had provided every single thing we had originally discussed with the client.
But because we did not provide a written quotation and service agreement and did not have the correct company structures in place, I had no leg to stand on in court and no way of protecting myself or my business.
But I managed to turn my frown upside down by doing a bit of research on company structures after the fact and here’s a bit of what I found.
Unbeknownst to some, in Australia there are 3 main legal company structures.
I’m going to give you the clef notes on these to help you make a more educated decision on how to assign your business the correct title.
According to the Department of Industry, Innovation and Science of Australia, they explain the 2 of the main company structures as follows:
“A sole trader business structure is a person trading as the individual legally responsible for all aspects of the business. This includes any debts and losses, which can’t be shared with others. This is the simplest, and relatively inexpensive business structure that you can choose when starting a business in Australia. As a sole trader, you’ll generally make all the decisions about starting and running your business, although you can employ people to help you.”
“A partnership is a business structure that involves a number of people who carry on a business together. You may choose a partnership over a sole trader structure for example, if you’ll be jointly running the business with another person or a number of people (up to 20). There are two types of partnerships – general and limited. Partnerships are governed by the relevant law depending on your state or territory”
According to Wikipedia a Pty Ltd. company in Australia is explained as follows:
“A proprietary company is a form of privately held company in Australia that is either limited or unlimited. However, unlike a public company there are, depending on jurisdiction, restrictions on what it can and cannot do.
There are 2 types of Pty Ltd. companies, a “large proprietary” or “small proprietary”. The differences here relate to issues such as operating revenue, consolidated gross assets, and the number of employed persons.
Large proprietary companies are required to appoint an auditor and lodge appropriate financial statements with the Australian Securities and Investments Commission (ASIC).”
More structures to consider (that I won’t go into too much detail today) are the public limited company (Ltd) and the Unlimited Proprietary company (Pty) with a share capital. Though some of the requirements are the same there are some slight differences that you can check out here.
So, you can see how important it is to get informed before you make a decision on how to structure your business. There are many ways to get great advice and support before you assign your business structure from accountants, advisers, solicitors, tribunals and so on.
As a rule, remember to check on the insurances, occupational health and safety rules for your industry, workers compensation and superannuation you may need.
Check out the official government website for more information.
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