Business + 
Commercial 
Law

Different business structures will affect the day-to-day management of your business, your obligations as a business holder, your reporting obligations (if any) and will vary in start-up and ongoing costs. It is important to understand the rights and responsibilities under each structure, in order to make the most informed decision. In Australia, the most commonly used business structures are Sole Trader, Partnership, Company and Trust. As a starting point, consider the size of your business and the level of control you are seeking to maintain. We also recommend discussing appropriate structures with your accountants, as each have varying tax implications.

If you are entering into a business contract, it is important to firstly have the contract reviewed by a solicitor to ensure all important terms of your negotiations have been addressed. A solicitor can also explain your rights and obligations that exist under the contract, what constitutes a breach of the contract, and the other party’s rights upon your breach of contract. Depending on the nature and context of the contract, a solicitor will be able to provide advice on whether it has been drafted appropriately to meet the needs of the parties, and provide any suggestions for amendments if required.

A Shareholders Agreement is an important document recommended for a business operating under a Company structure. The Agreement will manage the relationship between company shareholders and directors, and clearly define the rights of each. It will cover important matters such as any Director’s duties, what shall take place if a Director is incapacitated or deceased, the process by which new shares are issued and existing shares are sold/transferred and the procedures by which directors can be appointed/replaced. Importantly, a Shareholders Agreement will outline dispute resolution procedures in the event one arises between the Shareholders/Directors. It is important to be aware that a Shareholders Agreement will apply in addition to any company Constitution and legislative requirements contained in the Corporations Act 2001.

It is not uncommon for the terms ‘bankruptcy’ and ‘insolvency’ to be used interchangeably. The terms both involve the process whereby creditors are attempting to recover their money from debtors. However, the term bankruptcy only applies to individuals who are unable to pay their debts. As such, it can be used with respect to partnerships and sole traders, whereby business holders act in an individual capacity. Insolvency proceedings are initiated against companies who are unable to pay their debts on a long-term basis. An insolvent company will then begin ‘winding-up’ and will proceed with insolvency proceedings such as voluntary administration, liquidation or receivership.

If you are a business holder, the level of protection offered to your assets will be dependent upon your business structure. For example, businesses that operate under a Sole Trader or Partnership structure do not create a separate legal entity. Therefore, you will be operating the business in your individual capacity, and will be held personally liable for the debts and general conduct of the business. In contrast, operating under a Company structure will create a separate legal entity capable of suing and being sued in its own capacity. Therefore, any debts of the company will be paid off using company assets and resources, not with the Directors’ personal assets. In saying this, if a Director is found to have breached their duties under the Corporation Act 2001, this may attract personal liability.

We certainly can! If you are thinking of hiring employees under your business structure, it is important that you have contracts in place to protect both yourself and your new employees, and that these contracts are drafted by an experienced solicitor. An employment contract should be a reflection of the relationship you intend to have with your employees, and of the position you are offering. It will cover matters including the duration of the employment, the nature of the role and any performance requirements or obligations placed on the employee. With a comprehensive employment contract, all parties are aware of what is required from them during the employment, reducing the risk of any misunderstandings or disputes down the track.

Unfortunately you don't you get out of all debts if you declare bankruptcy. It is important to assess your situation and tally up all debts owed to creditors before seeking professional help to pay off your debts. In order to begin this process, you are required to nominate a trustee to administer your bankruptcy, and this trustee is required to provide their consent to act in the role. If you are unable to nominate a consenting trustee privately, the Official Trustee will be nominated by default. It is your obligation to provide all details relating to your debts, income and assets to your trustee, who will then contact your creditors and arrange for any assets to be sold in order to assist with paying off your debts.

Generally, any property you own either solely or jointly with another individual can be claimed by your trustee as an asset. Your trustee may also claim any money held in any bank accounts as at the date of bankruptcy, however, to the extent whereby an amount is left over for moderate living expenses. Additionally, payments received by an individual that classify as ‘protected payments’ will not be able to be claimed by your trustee. Protected payments may include superannuation funds or compensation received for personal injury. Any assets purchased using protected funds will also not be able to be claimed by your Trustee.