A drive to succeed and a preparedness to work hard are often important motivators for people to start up their own business.
A business owner will be faced with many challenges on the path to success, but often those challenges are more easily overcome if the business is correctly structured at its beginning.
Fortune Manning’s Legal Checklist will help you achieve your goals and objectives. It outlines important issues which need to be considered prior to starting up a business.
Do I Need A Business Plan?
Successful business people plan the course they wish their business to take and how to best minimise risk whilst maximising success. A sound business plan will include the following considerations:
- type of business and its structure
- cost of formation and administration
- establishment time
- profit sharing arrangements
- funding arrangements
- industry legislation
- staffing arrangements
- taxation aspects
- ability to sell the business
- ability of business to expand
- ability to wind up the business
What Business Structure Should I Use?
The choice of business structure is one of the first decisions you will need to make. Your business plan and objectives will influence the structure for your business. These structures include:
Sole trader
This is the most simple form of business structure whereby you are responsible for owning and operating your business with all the consequences that flow from that. You are entitled to all the assets and profits from your business and are correspondingly personally liable for all its liabilities. This structure has the advantage of simplicity and minimal set up costs.
Partnership
The simplest partnership is where any two or more persons carry on a business in common with a view to profit. Partnerships are popular for their simplicity and the advantages of combining two or more persons’ experience and resources whether financial or otherwise. It is not uncommon to have the terms of any partnership relationship recorded in a partnership agreement which is subject to the provisions of the Partnership Act 1908. Most partnership agreements cover aspects such as capital contribution and ownership, profit sharing, treatment of partner advances and current accounts, partner withdrawal and winding up.
Company
A company differs from sole traders and partnerships in that a company is a separate legal entity. It is created by filing appropriate documents at the Companies Office. Companies offer the protection of limited liability.
However this is somewhat eroded by the usual requirement for personal guarantees of directors and shareholders by financiers, landlords and some suppliers. Companies are governed by the rules and regulations set out in the Companies Act 1993. The cost of compliance with the Companies Act can be a disadvantage of this structure as compared with a sole proprietorship or partnership.
Trusts
A trust is where one or more persons (the trustees) hold assets or property on behalf of another or others (the beneficiaries). Trusts can be used in appropriate circumstances to separate ownership of assets from the business itself.
How Can I Finance My Business?
Finance can be obtained from the owners of the business and/or externally from a third party (usually a bank) not involved in the business. There are short, medium and long term financing considerations which must be considered prior to commencing any business. It is important that you consider the capital costs of acquiring the business, the subsequent running costs of the business and the likely profits and then work out your projected cashflow before seeking finance.
Where Should My Business Be Situated?
It is not uncommon for business people to commence their business from home however in some cases the nature of the business is such that other premises need to be used. Again the considerations made in your business plan will assist you in determining where your business should be located. Some of the factors to consider are:
- your target market
- competitors
- zoning requirements
- future expansion
- staffing and supply requirements
Your business premises can be purchased or leased depending on the capital resources available to you. Whilst purchasing your business premises would provide you with an asset likely to appreciate in the future and be capable of being used as a security for future loans an alternative to purchasing would be to lease your business premises. Leases are usually long term contracts with the landlord which typically involve the following considerations:
- term of the lease
- annual rent
- rights of renewal
- rent reviews
- ability to assign
- maintenance of premises
- payment of outgoings
- personal guarantees
Should I Purchase An Existing Business Or Company?
Purchasing an existing business or company is one alternative to setting up your own business from scratch. Any such purchase will usually involve an agreement for sale and purchase whether it be for the business itself or the shares in a company which owns the business. It is important that legal advice is obtained prior to signing any agreement to purchase a business or shares. There are numerous considerations which should be discussed with your legal advisors prior to entering into any agreement such as the form of agreement, the price, tax implications, potential or contingent liabilities of the company and the list goes on.
What Are The Tax Implications Of Setting Up My Own Business?
The Income Tax Act and GST Act place certain obligations on you in respect of calculating and paying tax to the Inland Revenue Department. We can assist you in choosing the most tax efficient structure for your business.
If I Employ Staff What Should I Be Aware Of?
The employment of staff will mean you are required to follow a number of Acts and consider the terms of your employment contract. While the terms of employment are largely negotiable there are minimum standards and requirements laid down and all employment matters in an overall sense are subject to the Employment Relations Act. There are a number of items which would need to be covered in any employment contract including:
- job position
- commencement date
- term or notice provision
- hours of work
- remuneration
- benefits
- holidays
- personal grievance
- confidentiality
How Can I Protect My Business Ideas And Creations From Competitors?
Protection of your ideas and original creations falls into the area of intellectual property. Protection is available in the form of:
- trade and service marks which protect visual identification features that associate a product or service with a supplier of that product or service
- copyright which exists as a matter of law in all original created works or subject matter falling within the classifications contained in the Copyright Act
- patents which are a temporary and restricted monopoly in respect of your invention where that invention is a new product, new process, new article or machine or new method of using an old product
- trade secrets which are undisclosed or confidential information
- customer lists which are often the most valuable part of your intellectual property
We are able to provide you with expert intellectual property advice which will minimise the ability of your competitors to infringe on your rights.
Can I Protect Myself And My Family In Case My Business Should Fail?
There are various ways in which some protection can be afforded to you and your family in the event of your business failing. This protection can be in the form of a joint family home, establishing trusts for various assets or establishing other agreements and arrangements including relationship property agreements between yourself and your spouse. We are happy to discuss these options with you.
Are There Any Other Laws Likely to Affect My Business?
Depending on the nature of your business you are likely to come into contact with other legislation such as the Resource Management Act, Building Act, Fair Trading Act and Consumer Guarantees Act to name a few. We offer expert advice in respect of the rules and regulations applicable to the setting up and running of your business.
Our commercial team is central to the firm’s service to the business community. We aim to give the very best technical advice combined with sound commercial judgement.
Fortune Manning provides a broad spectrum of services covering all aspects of commercial and business activity. Our legal advice is positive and aimed at providing your business with a sound base for success. For specialist assistance and advice contact David Selkirk at Fortune Manning.
We will protect your interests through a wide range of professional services including:
- assisting you with the preparation of your business plan
- advising on the most suitable structure for your business
- assisting with your cashflow and financing requirements
- assisting with premise location and lease arrangements
Fortune Manning puts you first and is determined to excel on your behalf.
We work hard to find the best and most cost effective methods to assist you.
We can help your business succeed.