Australian Business Number (ABN): This is a unique 11-digit number necessary to run a business in Australia, regardless of business structure. Any number of businesses may be conducted under the same ABN as long as the business structure is the same, however, changing business structures will require a new ABN. Selling a business does not require a new ABN.
Australian Company Number (ACN): This is a 9-digit number issued by the Australian Securities and Investments Commissions (ASIC) as an identifier for companies. While all businesses need an ABN, only companies will require an ACN.
Australian Consumer Law (ACL): This is set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth) and sets out all consumer rights. All businesses selling goods and services to consumers in Australia are required to comply with the ACL.
Business Tax: As a business, there are many types of taxes that are levied in Australia that you have an obligation to pay. The most common taxes are income tax, capital gains tax, fringe benefits tax, goods and services tax and payroll tax. These may vary according to State and Territory, and it is best to check with a lawyer as to what taxes you need to pay. If your business is an SME, you may qualify for small business tax concessions.
Commercial Lease: This is a document that sets out the rights and obligations of the owner of a commercial property and a third party who has agreed to lease and occupy the property. There are standard lease contracts that are used in States and Territories, however, you should ensure that the lease is tailored to your specific circumstances, and any special conditions are inserted before signing.
Company: This refers to the limited liability company. Its defining feature is that it is an entity separate to the business’s shareholders and directors so that they cannot be held personally liable for the company’s debts in the case of insolvency. The company structure is more costly to set up. However, it is the most practical and efficient structure for businesses that are planning for growth. This is one of the more common business structures amongst startups and SMEs.
Consumer Guarantees: Under the Australian Consumer Law, various consumer guarantees are set out which are compulsory for all businesses. All Australian businesses must comply with these consumer guarantees.
- Repairing, replacing or refunding faulty goods;
- Manufacturer’s warranties;
- Acceptable quality of goods;
See also “Australian Consumer Law”.
Director: All companies must appoint at least one director when it is formed. Directors have certain legal rights and obligations under the law. In particular, director’s duties are particularly important as failure to adhere to these duties may potentially result in personal liability for the director. Some of these duties include:
- Duty to act in good faith in the interest of the company;
- Duty to act with due care and diligence;
- Duty not to trade while insolvent.
Due Diligence: This is a key process in the sale of a business where the purchaser undertakes a comprehensive review of the relevant material disclosed by the vendor of the business. This includes investigation of the business’s operations, assets, liabilities, value, potential and risks of the business.
Franchise System: Setting up a franchise system requires the business owner to comply with the Franchising Code of Conduct, which provides for a four-point franchise test to determine whether a business is a franchise. A business will be seen as a franchise if:
- There is an existence of an oral, implied or written contract;
- There is an existence of a system or marketing plan;
- There is use of a trademark or commercial symbol;
- There is payment of a fee.
See also “Franchisor” and “Franchisee”.
Franchisee: The franchisee is the party that has purchased a franchise. Franchisees must ensure they are in a suitable position to enter into a franchise system before they sign the franchise agreement and they understand their legal obligations.
Franchisor: The franchisor is the original owner of a franchise system. The Franchisor has specific rights and obligations they must comply with under the Franchising Code of Conduct.
Goodwill: Although there is no definitive description of goodwill, in legal terms it is a type of intangible personal property. Goodwill is an essential component of a business and usually, cannot exist separately from the business it is connected to. It makes up a substantial portion of the value of the business in the event of a sale.
Incorporation: The term incorporation simply refers to the process of forming a new company. When you incorporate, you are creating a new legal entity that is separate to you personally. See “Company” for further details.
Joint Venture: A joint venture is a business agreement between two or more parties for the completion of a particular task, made for mutual commercial gain. They can be incorporated or unincorporated although incorporated is the more common option. Joint ventures can be confused with partnerships. However, there are key differences between the two.
Loan Agreement: Also known as a facility agreement, this is a document where one party agrees to lend finances to another. It may be quite complex, and there are key terms that must be considered when entering into a loan agreement, including interest, prepayment, repayment and security.
Medium Business: In general, medium businesses refer to businesses with 50 employees or more. Medium businesses may have further and more complex legal obligations than small businesses, particularly regarding tax payments, privacy considerations and employee concerns.
Non-Compete Agreement: This is an agreement where one party agrees not to compete with the other for a defined period in a specific area or industry. Many employment agreements will include non-compete provisions. However, a separate document may also be presented. The agreement must be reasonable. Otherwise, it may be unenforceable.
Non-Disclosure Agreement (NDA): NDAs are a common tool used by businesses before they talk with potential business partners, customers, investors and employees. They are legally binding contracts that mainly impose confidentiality obligations on the parties. NDAs can be either mutual or one-way.
Not-for-Profit/Charitable Organisation: Charitable organisations in Australia, like a regular business, can take the form of various business structures. Most commonly they will be public companies limited by guarantee. Charitable organisations can apply to be registered with the Australian Charities and Not-for-profits Commission (ACNC).
Parallel Importing: Parallel importing is the business of selling genuine products directly to consumers in Australia outside of any formal manufacturer distribution channels. It is legal in Australia and supported by the Government as it increases competition, however, there are also particular legal obligations that parallel importers should be aware of.
Partnership: A partnership business structure is relatively simple to set up as all that’s needed is a partnership agreement. A partnership can consist of two or more individuals or companies. As a sole trader structure, however, partnerships are also open to personal liabilities and each partner will be legally responsible for any losses or liabilities that another partner has caused. It requires a high degree of trust between each partner.
Receivership: When a company faces insolvency, receivership is an option for them if they do not wish to completely wind up the company. This is the process where one or more of the company’s secured creditors appoints a receiver for them to collect and sell the company’s assets so as to repay outstanding debts to the secured creditors.
See also “Secured creditor”.
Sale of Business Standard Contract 2015: This is the latest edition of the standard contract used in NSW for the sale of business. Both the vendor and the purchaser may add special conditions attached to the end of the contract along with any schedules if necessary. Usually, a schedule of a list of plant and equipment will be included.
Secured creditor: A secured creditor is a party that has security over a company’s assets. When a business winds up, in general, secured creditors are first in line to be paid out. When a company goes into receivership, the receiver’s primary duty is to the secured creditor.
Service Agreement: Also known as a service contract, a service agreement is an agreement between a company (the principal) and a service entity (the service provider), where the service provider agrees to provide a service in exchange for a fee. Service agreements can cover a wide range of industries and commercial relationships, including services between businesses, between a business to a customer, between a contractor and sub-contractor.
Small Business: Small businesses refer to businesses with less than 50 employees. It can be set up as any business structure.
SMEs: This is the standard term referring to Small and Medium Enterprises. SMEs make up 99.7% of total businesses in Australia.
Sole Trader: This is the simplest legal structure available for businesses. Sole traders operate and manage a business under their name. This is the most common business structure in Australia as it is relatively easy and cheap to set up, administer and wind down. However, the key drawback of a sole trader structure is that you will be personally liable for any debts of the business or if anything goes wrong, which means that you put your personal assets at risk. Additionally, revenue is treated as personal income and taxed the same way.
Startup: While there is no set standard or legal definition of a startup, there are a few defining traits of a business which will categorise it as a start-up. The five key features are:
- Fast growth;
Terms & Conditions (T&Cs): The T&Cs are essentially a contract between your business and your customers setting out the service or product you are selling and how this will be provided. These terms are to protect your business and ensure your customers are clear on what you are providing. Traditionally these are provided in hard copy for parties to sign.
Trusts: This is also a possible structure you may opt for when setting up your business. The most common type of trust is a discretionary trust where the trust fund is held by a trustee and administered according to the terms of a deed. The trustee, which can be either a corporate trustee or an individual trustee, is responsible for apportioning capital or income from the trust to the beneficiaries each financial year. If the trustee is a company, then a trust structure will reduce personal liability.