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Doís And Doníts For Small Businesses

Starting a new business can be a daunting operation. A remarkably high percentage of small businesses fail within the first five years of operation. Sometimes that is because the business itself is not sound. However, on other occasions the problem lies in a lack of planning or an ignorance of the many legal requirements that must be met by the small business operator.

One of the first things you need to find out when you're starting out is what laws apply to your new business. You may wish to consult a legal professional to help you with all the legal requirements that you must comply with, such as licences, registrations, contracts and leases.

In addition to these requirements, you may also encounter -issues related to contracts, employment, fair trading, leases, insurance, credit and debt recovery, finance and taxation. All small businesses should also be careful to ensure that they comply with all relevant employment law, and also laws and rules that related to occupational health and safety.

When youíre starting any business there are many issues to consider. People intending to use their home as a place of business often have to comply with particular state, territory and local government regulations. These regulations often address the impact your business activities may have on the surrounding area (e.g. pollution, energy use or parking). Some issues to consider are:

- council approval - zoning, signage, and health issues;
- home mortgage and rental agreement restrictions;
- insurance - ensuring you have the correct level to protect yourself;
- financial management - arranging finance and setting up systems;
- taxation - Capital Gains Tax, and deductions for expenses;
- location - zoning and redevelopment; and
- set up - separating your work space from the rest of your home.

If you plan to buy an existing business, carefully analyse both the advantages and disadvantages. One advantage is that a good business history can increase the likelihood of a successful operation and ensure that finance is easier to obtain. Potential disadvantages can be overestimating the value of goodwill figure and a poor public image inherited from the previous owner.

As a prospective business owner you should determine the current worth of the business and its future prospects. Some important considerations are:

- the vendorís reason for selling the business;
- sales patterns, trends, customer base, current suppliers;
- fixed and variable costs, and staff costs;
- profitability including analysis of financial records, future cash flow and profitability;
- identifying and checking all assets, including intellectual property and leasing arrangements;
- whether there are any outstanding debts, refunds and warranties;
- the purchase agreement;
- tax implications including GST, Capital Gains Tax, stamp duty implications; and
- legal issues such as leases, business structure (eg sole trader, partnership or corporation).

Often those people considering a small business may become a franchisee. Buying a franchise can mean a significant financial investment, so its important to have all the relevant facts before you enter into a franchise agreement.

The Franchising Code of Conduct helps you to make more informed decisions by requiring franchisors to disclose specific information and to follow rules in their dealings with you.

Starting a new business may also mean establishing a company. A company or corporation is a separate legal entity or person. It can enter into agreements in its own name. This generally means that the owner of a business is not liable for fulfilling the companyís contractual obligations. However, in some cases (such as leases), the contracting party may seek a personal guarantee from the owner of the company in the event that the company is unable to meet its obligations under the agreement.

In general, a company:

- can take legal action against others for loss it has suffered;
- is made up of shareholder(s) and officers (usually one or two directors and a secretary); and
- has particular reporting and accounting requirements.

If the company becomes unable to pay debts as and when they fall due it may be insolvent the directors may be liable for debts incurred by the company during this time.

By contrast a partnership is a relationship or association between two or more persons with a view to profit. The persons may be individuals or companies. Unlike a company the partnership is not incorporated. The rights of the partnership are governed by a partnership agreement which may be made in writing, verbally or by implication. It is also governed by state partnership legislation. A partnership enters into an agreement in the name of its partners. Usually each partner is jointly liable for the obligations under the agreement.

If you are establishing a new business you should seek the assistance of a solicitor, accountant or business adviser.

Submitted by:

Frank Egan - LAC Lawyers

Frank Egan is the Chief Executive Officer of LAC Business Lawyers Sydney and has over 27 years of experience as a lawyer.




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