The legal basics for starting a new business

The legal basics for starting a new business

How will your new business be structured?

One of the first things to consider from a legal perspective when starting up a new business is what the structure of the business is going to be.

Is there enough legal risk in the business, or are you willing to take the risk of running a sole trader if the business was to get in financial trouble?

[inlinetweet prefix=”” tweeter=”progressivelegal” suffix=””]Thinking of starting a business? Make sure you know the legal basics.

There are a whole bunch of different structures you can set up to start a new business – sole trader, partnership, company (incorporated Pty Ltd), Associations, discretionary trading trusts etc. We’ll deal with these in more detail in other articles but suffice to say, there’s a myriad of different types to cater for all different business vehicles. Your accountant can also help from a tax perspective.

Do you have a good accountant?

It’s one of the first questions I ask a start-up.

Because if the numbers don’t work, there’s not much point in doing a whole bunch of legal work if the new business is going to go out of business in less than 3 months. I.e. if the numbers don’t work, then reality is going to set in real quick.

In all our conversations with clients, we suggest heavily that they find a good accountant that understands them and their business, and goes through the numbers with them. Find out what your break even point is and whether you can last that long in business. Overestimate the amount of costs (some people double them) – a spreadsheet is wise to use to work out what it is going to cost and what are the options for pricing, how many clients do you need to get to break-even.

Do you have a business plan?

At the very least, start a business plan. It’s absolutely essential to get down in writing what your new business is going to do, why it is going to be different – what is your point of difference? How are you going to find clients, what is your approach going to be, who are your competitors, grab a whole bunch of links of things you like the look of out there on the web and things you don’t like, even screenshots and put them in the word document.

Get really clear on your message and get attached to it really quick. The best businesses are able to distinguish themselves from other businesses really well. They find a way to communicate that really effectively with their potential target market and attract them emotionally to purchase from them.

Do you know how much capital you need?

How much capital does the new business have to devote to fundamental start-up costs like Financial Advice, Legal Advice, Marketing Advice, Software, Web and IT Advice (now becoming more fundamental than before).

Most businesses undercapitalise the start up of a new business and don’t properly plan for unexpected financial events, tax obligations and to get their legal house in order so they don’t play Russian Roulette with their business – they only get their legal services when they absolutely have to. It’s a grudge purchase for most people. We know. They’d rather go to the dentist than see a lawyer. We understand why. That’s what we’re trying to change.

After 3 years in business and advising thousands of start-ups and small businesses, getting the right advice from the right people at the right time is absolutely critical for the success of a business. Timely advice from a financial perspective, timely advice from a legal perspective, getting the right software at the right time, getting PR at the right time, marketing advice that is right for you at the time you need it from someone you can trust. You’re starting to get the picture no doubt.

Choose a business name

There are some ABCs of selecting a business name. You need to make sure that it is clear with ASIC, clear on ABN lookup, do a quick Trade Mark search to see whether there are any others around that are close or if the name is taken already, general Google search, see if any of the social media handles are taken.

If it’s all clear and you’re set on the name. Go ahead and grab all of them straight away and don’t delay. Get the trade mark for your name as soon as possible to stop others from coming in and registering underneath you. Names are becoming more and more scarce and it’s becoming more and more important by the day to secure all these. Get your intellectual footprint secured.
A privacy policy is vital for your website if you are collecting personal information. It needs to deal with a whole bunch of items like what information is collected, how it is collected, where it is stored, complaint mechanism etc. We’ve written some articles on Privacy Policy for you too.

If your business identifies a really critical thing that you could get in trouble for, then a disclaimer/waiver is appropriate. You’ll have seen these all over the place. In the medical industry, they are everywhere for obvious reasons, insurance companies will make you sign a waiver to make sure you disclose all relevant information before obtaining the insurance – if you don’t, they will not cover you.

You might be running a business 2 business service that you need to spell out in flashing lights that you are not responsible for this, that and the other – that they need to obtain independent advice etc. You will see we have a disclaimer/waiver for Law in a Box.

Are you employing staff? Then you absolutely must have an employment contract.

If you are employing staff or contractors – you need to have a written agreement with them. Full stop. You’re simply asking for trouble if you don’t. We deal with this in Law in a Box articles.

Be careful when bring on extra resources as either staff or independent contracts. This area is a mine-field for small business and can get them into a lot of trouble with the ATO.

Agreement with the owners

If you are starting a business with others, you really should have a detailed agreement between the two of you. e.g. partnership/shareholders agreement. It’s an all-too-often issue we see in businesses. They don’t want to deal with it and it comes back to bite them in a big way.

Having things laid out in black and white also removes ambiguity or misunderstandings which can lead to a business break-up. It’s really common and the ramifications are massive. Some have even ended up putting parties into bankruptcy. It can be that serious. There’s much more to it and we’ve written further articles about this.


As entrepreneurs, we’re almost defined by our ability to be rebellious. To buck the trend. To take risks.

But, I urge you do what is right from a legal perspective as this is a risk that almost all of us can’t afford and you need to do it right.

There are plenty of other areas of business to satisfy your risk appetite.

Your legal side should not be one of them.

About the Author

Written by Ian Aldridge, Founder and Principal Lawyer at Progressive Legal.

Ian started Progressive Legal to break the stereotype of ‘typical’ lawyers by providing transparent affordable and easy to understand legal advice and information.

Want to find out more about how Ian and the team at Progressive Legal can help you? Book a strategy call with Ian here >

No Comments

Sorry, the comment form is closed at this time.