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Coworking spaces involve multiple individuals or businesses all working under the same roof. As demand for coworking spaces grow, more and more spaces are being developed. Each has their own different approach, target market and offering. This article explains the key things to know before opening a coworking space.

How Should I Structure My Business?

Before opening a coworking space, you should think about what business structure you will use to trade. It is important to think about this first, as your business structure will have different responsibilities and tax implications going forward. Once you have set up the relevant business structure, you will then be able to enter into contracts. The different types of business structures to choose from are outlined below.

1. Sole Trader

Operating as a sole trader is one of the simplest and easiest structures to setup. It involves you individually carrying on a business with an Australian Business Number (ABN). The business is wholly owned and controlled by you. If you operate as a sole trader, your business and you as an individual are indistinguishable. This means that you are entitled to all of the profits of the business. However, this also means that you are liable for all of the tax and any debts of the business.

Operating as a sole trader to start a coworking space is suitable if you are running a very simple business. However, it also opens you up to risk as you will be personally liable for any troubles the business may find itself in.

2. Partnership

If you and a business partner (or partners) plan to open up the co-working space together, you could consider operating as a partnership. A partnership involves two or more people running a business together. Similarly to operating as a sole trader, this structure is simple to setup. However, you will be jointly responsible alongside the other partners for any liabilities that the business incurs.

For example, if someone sues the business, you will be equally liable for compensation as the partner who may have caused the problem.

3. Company

Opening a coworking space as a company is undoubtedly one of the most popular structures. Starting a company has initial start up and ongoing compliance costs. However, it provides you with more asset protection than operating as a sole trader or partnership.

One of the main advantages is that a company is considered to be a separate legal entity. This means that the company can:

  • enter into contracts with your members;
  • enter into a lease with the landlord; and
  • borrow money from the bank.

This is beneficial to you because the company is responsible for any debts, not shareholders. This, therefore, minimises your your personal risk.

Another benefit of creating a company is that it allows you to raise funds for your company through shares. For a company looking to grow, this is a great way to increase cash and expand without having to go into personal debt.

Regarding tax, companies are charged at a corporate tax rate (of either 27.5% or 30% depending on the level and type of income derived) which is lower than individual tax rates.

4. Trust

Some people choose to run their business through a unit trust or discretionary trust.

In a unit trust, the trust has fixed units that investors own, and profits are distributed in fixed proportions.

In a discretionary trust, (sometimes known as a family trust) the trustee has discretion as to which beneficiaries and how much income it distributes.

Trusts provide tax and succession advantages. However, they are less commercially understood compared to companies.

Selecting a Premises

One of the most critical decisions before opening a coworking space is choosing the right premises. Whether you are purchasing a building or renting a space, you want to have an understanding of your target market and where they want to work.

From a member’s point of view, one of the many benefits of a coworking space is that they can work in a good location for an affordable price. You should do market research to understand the most viable location to start your business. Members want to be in central locations that are close to their:

  • customers;
  • suppliers;
  • mentors; and
  • investors.

If you are going to rent a premises, also you need to make sure that you have a lease agreement in place between you and the landlord. Aside from negotiating the term and rent of the lease, there are a number of key things to look out for.

Subletting and Sublicensing

Since you want to sublease or sublicense the space to your members, you need first to make sure that you have permission in the lease to do this.

Fit-Out

You need to either choose a location that is already fit out exactly how you like or ensure that the lease allows for you to fit out the premises on your own. Sometimes, landlords will provide incentives for you to do so.

For example, a landlord may offer a rent-free period while you fit out the premises before you have any members.

Permitted Use

You should ensure that your business is compliant with the permitted use on the lease. You will need to think about the activities that you will allow your members to perform within your premises.

Building Your Brand

Before opening a coworking space, you should build your brand and attract members. Understanding who you are trying to attract is a good first step.

For example, some startups focus primarily on fintech startups, while others encourage a more diverse range of members.

Deciding on a memorable business name is important because this is what is going to distinguish you from other coworking spaces. As your brand grows, a key asset will be your business name, so it is important you trade mark it.

A trade mark is a word, sign or mark that distinguishes your business from others. For your name or logo, a trade mark gives you the exclusive legal right to:

  • use it;
  • license it; and
  • sell it.

Many coworking spaces are instantly recognisable by their brand.

For example, WeWork is instantly recognisable as a global coworking space.

By trade marking your name early, you can ensure that:

  • you have the legal right to use your brand and aren’t infringing on someone else’s rights; and
  • no competitors can start trading under your brand name and take business away from you.

Memberships

The facilities you offer and membership offerings you create will determine whether you can attract members and make money off your business venture. In a competitive market, you need to carefully consider what you can offer. Benefits potential business owners are looking for include:

  • up to date technology including reliable internet, conference facilities and booking systems;
  • meeting rooms and breakout spaces;
  • social spaces to relax and recharge;
  • a serviced front desk; and
  • events to expand their social and business networks.

Once you have put together your membership package, it is critical you have a coworking space licence agreement in place to govern the relationship between you and your members. The coworking space licence agreement should be complemented by coworking space rules that members need to agree to. Some terms your licence and rules should address include:

  • fees;
  • length of the membership;
  • termination of the membership;
  • drug, alcohol and noise policies; and
  • insurance.

Key Takeaways

Coworking spaces are surging in popularity as startups and workers demand more flexibility in their work arrangements. However, opening a coworking space requires lots of planning. Some key things to consider before getting started include:

  • working out your business structure before you start;
  • choosing a location that reflects your brand;
  • trade marking your business name and logo; and
  • drafting a coworking space license agreement.

If you have any questions on opening a coworking space, contact LegalVision’s business lawyers or fill out the form on this page.

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