We have published a video on YouTube on how to start up a company in Australia. Click HERE to see the video.
Recently, a client asked me to assist with preparing a company constitution. Because the company was for a group of artists, after consulting an accountant it was decided that the company should be established on the basis of co-operative principles. The usual type of company that is trading in the marketplace is investor-owned, that it, it is designed for shareholders to invest money in and get a ROI.
This model applies equally all the way from large companies whose shares are traded on stock exchanges down to small private companies whose “owners” or shareholders are often the same few people who work in the business. The co-operative model is a different version of organisation, where people group together as co-workers or consumers and run the corporation not for the dominant purpose of making a profit to be distributed to shareholders, but rather to provide services to the members.
Co-ops have advantages and disadvantages. One major disadvantage is that they don’t work very well unless there is active participation by members. But the advantages can be very significant. Co-ops can control the prices of commodities and services efficiently for their members, delivering them the ‘best deal’ as it were, on whatever the co-op is designed to provide, by making enough profit to fund its continued operation but no more. Where a company is being formed by a group of like-minded but relatively independent persons, the co-operative model may be appropriate.
To learn more about co-operatives in Western Australia, you can visit the website of Cooperatives WA
To learn more about the international cooperative movement, visit the International Cooperative Alliance
Irving Law can provide legal advice on starting a new company in Australia, including a cooperative-style company.
Do you have assets located in Australia and also in a foreign country? If you have migrated to Australia from a foreign country, have you left any valuable property behind in that country, or is it possible that you might acquire property there, for example if your relatives die and leave you an inheritance? If so, you may need to consider whether you need to have more than one Will. There are a few simple reasons to consider doing this, including:
- Simplifying administration. There are costs associated with selling assets and transferring the funds from one country to another. Example: you could leave your apartment in Hong Kong to your brother and your collection of luxury cars in Australia to your sister, instead of all assets being sold, all of the money being gathered in one place, and then distributed to your beneficiaries.
- Avoiding bureaucracy. The probate authority in each country will want to see your original Will. In Western Australia, for example, when a Will is submitted for probate, the original document is kept by the Probate Office. If you only have one Will, but assets in multiple countries, this may cause difficulties for your executor.
- Taxation. Different countries treat deceased estates differently in terms of taxation. There may be an overall savings or a penalty depending on where your estate is collected and administered. Irving Law does not provide taxation advice. This is something you should consider in consultation with your financial adviser.
If you have assets both in Australia and in another country, Irving Law can prepare your Australian Will so that it applies only to assets located in Australia, or, if you prefer, to assets located anywhere in the world except in the other country. You could then have a second Will drawn up under the other country’s laws, to deal with your assets located there.
Reference source: Charles Rowland, Hutley’s Australian Will Precedents (7th ed, 2009), Chapter 3.
UPDATE (11 December 2013): The Contract Law Guide (Australia) by James Irving is now available for download for AUD $8.50 from the website of Wave Eight Media.
Over time, most business owners develop a grasp of basic legal concepts. They understand these ideas because they have been exposed to them over time. But if they wanted to study the law more thoroughly or carefully, they would discover that the available information is either at a very simple level, or else is at a very sophisticated and complex level. Unfortunately, there doesn’t seem to be a lot of information in between these two extremes.
One exception would be the legal information about intellectual property rights published by groups representing authors and artists. Apart from this, however, in Australia there is not a lot of plainly written legal educational material designed for the average layperson.
For this reason, Irving Law is collaborating with e-publisher Wave Eight Media to create and release a series of e-books on legal topics that may be helpful to small business owners. The first such e-book, called Company Law Guide, was published in early 2013. The one released in December 2013 is called Contract Law Guide (ISBN 978-0-9875720-2-8.
COMPANIES: Running a company means complying with quite a few rules on all sorts of things, like keeping a register of members, recording decisions of the board of directors, holding meetings of members, and so on. And on and on. While a company structure may be a good choice for many SMEs, the number of rules involved in running a company can be daunting.
Don’t despair. There are many aids available for business owners. One free aid that may have escaped notice is the SMALL BUSINESS GUIDE that is published in section 111J of the Corporations Act 2001.
There are also a number of organisations, like the Australian Institute of Company Directors, that run courses for company officers and publish useful materials.
And there are also helpful books on the market, such as Directors At Work: A Practical Guide For Boards by G Kiel and others (Thomson Reuters, 2012).
What you should not do, if you are a company director, is to ignore the rules. Breach of directors’ duties can lead to civil and also criminal penalties.
If you need assistance with a company law issue, please contact James Irving for an obligation-free discussion.
TOO SICK TO MANAGE YOUR AFFAIRS? When I prepare a Will for a client, I also offer to prepare an Enduring Power of Attorney for them. An EPOA takes effect when a person becomes incapable of managing their affairs, through dementia, illness or some other reason. Like a Will, the EPOA appoints another person – the Attorney – to make decisions and sign documents about the maker’s property. Conditions can be attached to EPOAs, for example that the Attorney must consult with the maker’s family members before taking important decisions. If you have assets and children aged under 18, you should have a Will and EPOA. My price for preparing these documents begins at $250 for the Will for a single person and $300 for a couple (with similar documents), and the EPOA is no extra charge. If the preparation takes more time than usual, I would charge more, for example if the client has special requirements or unusual circumstances that require extra work – but those are my basic prices. Your loved ones will be grateful that you have left your affairs in order. Don’t put off getting your Will and EPOA. – James Irving
WANT TO START A COMPANY? One big question that people ask themselves when they start up a business is: what legal STRUCTURE should my business have?
In Australia, the main choices are: (1) sole trader, (2) partnership, (3) company.
There are advantages and disadvantages attaching to each choice. Incorporation as a company will confer limited liability, which is good for people involved in business deals that can go wrong. But it also increases exposure to income tax: the company will taxed, and the individual directors who draw salaries from the company will also be taxed. Balanced against this is the fact that the salaries paid to the directors will be expenses for the company, which may be claimed as deductions from its income (consult your accountant for expert advice on taxation matters).
Also, when making loans to smaller, private companies, banks usually ask for personal guarantees from the directors, which places them more or less in the same position as sole traders.
So, there are a number of factors to weigh up when deciding what structure to implement for your new business. Very importantly, you need to think about the long term. It may be easier to sell your business if it is run by a company, which can be transferred to the new owners. Succession planning is an important part of planning a new business. The old adage is very often true: failing to plan is planning to fail. Don’t make that mistake when you start your new business.
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GUARANTEEING A LOAN. I was approached recently by a client who wanted to sign a home loan guarantee for a relative.
The terms of the guarantee requested by the lending bank were standard, and in some ways placed my client – the guarantor – in a more dangerous position than the borrower.
For example, the guarantor would not have the benefit of using the house, but the bank could choose to enforce the guarantee against my client instead of enforcing it against the borrower.
A default by the borrower – meaning for example that an instalment payment was overdue – would allow the bank to enforce the guarantee for the full amount of principal outstanding, plus interest, plus costs.
The only way to get out of the guarantee, once the loan had been made, was for the guarantor to pay the loan out in full.
With tough conditions like this, you might think that only very brave people would ever agree to guarantee the repayment of home loans. There is a simple solution, however: insurance.
A guarantor is entitled to insure, and should insure, his or her liability under the guarantee. This is different from the borrower obtaining mortgage insurance. I advised my client to consider this possibility, and to get expert advice.