A startup is a fast-growth company that is using technology to disrupt a market. Startups have the potential for high growth, fuelled by investors and external funding to raise capital. Unlike traditional businesses where funding comes from banks and loans, startups rely on professional investors (or sophisticated investors) to provide funds. They view startups as potentially generating high returns, while at the same time recognising the high risk of failure.
Innovation and disruption are also an important part of a startup’s DNA. By either reshaping the way entire industries work or using technology to solve a problem in an industry, startups aim to displace existing competitors.
Startups v Small Businesses
According to Fair Work Australia, a small business is one that employs fewer than fifteen employees while the Australian Bureau of Statistics defines it as fewer than 20 people. The Australian Taxation Office defines a small business as one that has an annual revenue turnover of less than $2 million. Meanwhile, the Australian Securities and Investments Commission defines a small business as one that satisfies two of these three characteristics:
- an annual revenue of less than $25 million
- fewer than 50 employees at the end of the financial year, and
- consolidated gross assets of less than $12.5 million at the end of the financial year.
While all startups can be small businesses, not all small businesses are startups. Small businesses are generally considered to sell less differentiated products and services. Moreover, they are likely to be trading in a confined geographical space. However, startups can often scale quickly, enabling them to grow much more quickly.
Many startups also use technology as an enabler of growth. The most common industries include engineering, hardware, software and biotechnology. The proliferation of Internet has greatly assisted the reach of startups, particularly due to its lower levels of capital investment. Many industries are now being disrupted by online business models (including LegalVision), providing unprecedented opportunity to maximise efficiency and create economic growth.
A unicorn in the startup space refers to a startup that has grown tremendously quickly without a formal exit (an IPO, merger or acquisition or liquidity event). It must have a market capitalisation of $1 billion or more. These startups are rare and hence the unicorn label. In Australia, startups that have achieved unicorn status include Atlassian and Campaign Monitor.
How do I start a startup?
Once you have you idea, a team and a prototype, this would be a good time to consider the legal documents you need to register the company. As soon as your startup has more than one owner, you will need a shareholders’ agreement. A shareholders’ agreement will govern how decisions are made and how investors can buy shares in your company. You may also require company secretarial documents such as the share certificates and transfer forms. This is set out in the Corporations Act 2001 (Cth). If you are dealing with sensitive information, a confidentiality agreement (or nondisclosure agreement) is necessary. Intellectual property protection, such as a trade mark, should also be considered.
If you are bringing on interns, employees or contractors, an employment contract is required. An employment contract sets out more than just employment details – rather, it deals with intellectual property assignment and leave entitlements. Finally, if you are planning to minimise your tax liability and maximise your asset protection, a family trust deed should be considered.
LegalVision can assist you with all the legal documents required for a startup, as well as capital raising advice and registering a trade mark. Contact us through the form on this page or give our Client Care team a call – we’d be delighted to set up your startup to become the next Australian startup unicorn!