Winthrop Mason | Commercial
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Commercial

Starting a new business

 

If you’re thinking about starting a new business, then we’re sincerely very happy for you. The world needs more entrepreneurs!

 

This is undoubtedly a very exciting time for you.  But as you have probably realised by now, this can also be a daunting process given the amount of preparatory work involved.  Building a successful business requires the laying of a solid foundation.  You will therefore need to see an accountant and a lawyer to help guide you through this critical phase in your business’ life.

 

Now while the reasons for engaging an accountant might be quite obvious – you need them to set up your accounts, financial reporting and mandatory lodgements – the reasons for engaging a lawyer may not be as easily apparent.  There is a whole range of areas which can present as a legal minefield, and it is important to at least have a preliminary discussion with your lawyer to determine how much help you will want from them based on your budget, needs and timeframe.

 

One thing, however, is quite certain:  If you fail to set up your business on the proper legal basis, you can unnecessarily expose yourself to a number of significant legal and financial risks, such as taxation risks, regulatory risks, personal liability risks and litigation risks.

 

At Winthrop Mason Lawyers, we can talk you through the “must haves” and the “nice to have” in your particular situation.  This will help you decide how much legal assistance you would like to receive from, and how much you want to do yourself.

 

We can help you with any one or more of the following:

 

  • Determining a suitable business structure (eg. sole trader, partnership, company, trust, cooperative, association, etc)  [the word “business structure” should link to the “Business structuring” page]
  • Considering appropriate asset protection and risk management strategies
  • Choosing and registering a business name with ASIC
  • Incorporating a company with ASIC (if required)
  • Applying for an Australian Business Number with the ATO
  • Applying for a Tax File Number with the ATO
  • Registering for Goods & Services Tax (GST) with the ATO
  • Understanding your obligations in relation to income tax, GST, fringe benefits tax, land tax, stamp duty and excise
  • Complying with record-keeping obligations as a business
  • Understanding your obligations under relevant Awards and the National Employment Standards (NES)
  • Understanding your obligations under superannuation, workplace health and safety, workers’ compensation, anti-discrimination and privacy laws
  • Protecting your business name or idea (intellectual property rights)
  • Determining what other licences and permits are required for your business (if any)
  • Reviewing the terms of your business financing and insurances
  • Reviewing and negotiating Lease Agreements
  • Drafting Employment Agreements and Independent Contractor Agreements
  • Drafting or reviewing Supplier Agreements
  • Ensuring business activities are compliant with fair trading laws

 

We appreciate that cost-minimisation is important to you so we are happy to agree on a fixed fee for our services.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Business structuring

 

When setting up a new business, it is vital that you select the right business structure to suit your particular personal and business needs.

 

It will save you a lot of time and money in the long run, as well as mitigate legal and financial risks.

 

Note that business structuring is also relevant in other stages in the life of a business, such as when introducing new business partners, adding new investors, expanding or downsizing the business, buying or selling another business and so on.

 

The right business structure can help minimise your taxes, protect your assets and set you down on the right path to a robust succession plan which will be useful later down the track.

 

Some things to consider when deciding on an appropriate business structure are:

 

  • The nature of the business and its industry;
  • Who will have ownership and/or control of the business;
  • Who will be responsible for managing day-to-day operations;
  • How will the business be financed;
  • How will the profits of the business to be distributed;
  • How are existing and future assets to be protected;
  • What are the legal and regulatory risks involved in the business;
  • What are the potential taxation implications for the business;
  • How long do you propose to remain in the business;
  • How do you propose to leave the business (exit strategy).

 

Also remember that the business structuring process is not just about deciding whether to set up as a sole trader, partnership, company or trust, although this is certainly an important component of the process.  It goes even more deeply than that.

 

If you were to select a trust structure, for example, you will then need to determine what type of trust to set up (eg. unit trust, discretionary trust, hybrid trust, SMSF, etc.), whether to have an individual or corporate trustee and so on.  You will also need to become familiar with its features and implcations.  The relevant governance documentation and stakeholder agreements will also need to be considered.

 

At Winthrop Mason Lawyers, we can help you with:

 

  • Determining a suitable business structure (eg. sole trader, partnership, company, trust, cooperative, association, etc)
  • Understanding the rights, obligations and risks associated with a particular business structure;
  • Setting up the relevant business structure;
  • Preparing all the necessary governance documentation to support your business
    structure;
  • Preparing all the relevant stakeholder agreements (eg. Shareholder Agreements, Joint Venture Agreements, Partnership Agreements, etc);
  • Submitting all the relevant paperwork with government agencies (eg. Office of Fair Trasing, ASIC and ATO);
  • Considering potential CGT and stamp duty implications.

 

Our aim is to work with you to ensure that you select a business structure that is the most closely aligned to your personal and business needs, objectives and timeframe.  We are happy to undertake the work for an agreed fixed fee.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Asset Protection

 

Asset protection is adoption of advanced planning strategies designed to legally protect your assets – whether cash, real estate, shares or other investments – from the reach of future potential creditors, litigants and regulators.

 

In simpler terms, it is really about making sure that your wealth ultimately gets distributed to your chosen beneficiaries.

 

Perhaps the biggest reason for adopting asset protection strategies is the risk of litigation and claims from future creditors.  However, it is important to understand that there are other contingencies which can potentially put your assets at risk, such as:

 

  • Personal bankruptcy
  • Business insolvency
  • Separation and divorce
  • Civil litigation
  • Enforcement proceedings
  • Criminal penalties
  • Regulatory sanctions
  • Accidents or diseases
  • Catastrophic events (eg. disasters)

 

And don’t think that you can simply hide or dispose of your assets just before the marauding creditors come barging at your front door.  It would be too late by then – the courts are empowered to “claw back” assets or otherwise reverse transactions that are intended to hide them from the jurisdiction of the courts.  You can get into serious trouble in doing that.

 

The key to successful protection, as we alluded to earlier, is advanced planning.  Some strategies to consider include:

 

  • Allocating ownership of selected assets to another person or entity (eg. form a company);
  • Allocating control of the assets to another person or entity (eg. form a trust);
  • Combining two or more legal business structures (eg. corporate trustee of a discretionary trust);
  • Identifying certain activities which represent significant risks for the business;
  • Training staff about situations which present the highest legal risks for the business;
  • Clearly articulating which party is responsible for assuming which risks in a particular transaction;
  • Obtaining guarantees or indemnities from third parties;
  • Incorporating legally enforceable clauses (such as disclaimers, limitation of liability, confidentiality and IP protection clauses) in supplier agreements, employment contracts and other business documents;
  • Transferring risks to a third party by obtaining necessary insurances (such as a public liability policy, product liability policy, professional indemnity policy, industrial special risks policy, key person insurance policy, etc).

 

There is no such thing as a bullet-proof asset protection strategy, but at Winthrop Mason Lawyers, we can help set you up so as to maximise your prospects of successfully protecting your assets.  In particular, we can:

 

  • Assess the level of legal and regulatory risks for your business in practice;
  • Advise you on a range of strategies that might be suitable for your business;
  • Implement the relevant asset protection strategies;
  • Prepare all the relevant documentation in support of the asset protection strategies;
  • Reviewing contracts to ensure a fair allocation of business and legal risks;
  • Drafting appropriate disclaimers and liability of liability clauses, as well as confidentiality and IP protection clauses;
  • Negotiate the terms of relevant insurance policies;
  • Provide staff training on risk management and asset protection issues.

 

Asset protection should be one of your top personal and business priorities.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Business succession planning

 

Business succession planning is the process of structuring your business affairs to ensure that ownership and control can be transferred to intended beneficiaries in a cost-effective, tax efficient and otherwise minimally disruptive manner.

 

Failure to put in place an effective business succession plan can prove to an expensive exercise for all parties concerned when it comes time for a stakeholder to make an exit.  It can have a detrimental effect on the valuation of the business, and worse, it may even destroy the entire business itself.

 

Without a clearly planned strategy, the risk of a dispute (and litigation) arising invariably escalates to a practical certainty.

 

There may, for instance, be disputes about the proper allocation of assets, how the business and its assets will be valued, who gets to run the business, how profits are to be distributed, how personnel are to be remunerated, how financing is to occur, who is entitled to the benefit of insurance policies, and so on.

 

And if litigation ensues, there is the added possibility that business assets and/or bank accounts can even be frozen, and this would obviously have a crippling effect on the business.  Nobody wants that to happen but, under court proceedings, it can become the unfortunate victim of “collateral damage”.

 

The succession planning process need not be a painful task, although it does need to be methodical and strategic.  Some key issues for you to consider when considering business succession planning are:

 

  • When will the succession plan be triggered;
  • How will the remaining owners, or new beneficiaries, acquire your interest (eg. buy or gift);
  • How will you acquire the interest of your co-owner if something happens to them;
  • Do you propose to transfer to family, management, employees or outsiders;
  • How will the assets be identified and valued;
  • How will the acquisition of your interest be financed if it is to be bought;
  • If you had to buy out your co-owners, what financial resources can you use;
  • If vendor financing is to be involved, what will be the terms of the financing;
  • Is there is a key person risk that will need to be managed;
  • How are key employees to be retained;
  • What guarantees are in place to ensure fair and equitable treatment of your family members by other co-owners;
  • Who will be the beneficiaries of any insurance policies;
  • What are the potential CGT, income tax and stamp duty implications to be taken into account;
  • Can the Small Business Capital Gains Tax concessions be relied upon.

 

At Winthrop Mason Lawyers, we can assist with any one or more of the following:

 

  • Facilitate the succession planning process and engagement of stakeholders;
  • Review the business arrangements to identify potential stakeholder issues;
  • Review business structures to ensure CGT concessions are available;
  • Reviewing Shareholder Agreements, Constitution and other corporate governance documents;
  • Help prepare a written Business Succession Plan;
  • Undertake preliminary due diligence of the business;
  • Draft Buy-Sell Agreements, Put & Call Option Agreements or Management Buy-Out Agreements;
  • Draft an Agreement to enter into a Business Succession Plan;
  • Consider appropriate insurances to be used to buy out business interests (eg. life, trauma and total & permanent disability insurances);
  • Review and/or negotiate the terms of relevant insurance policies;
  • Prepare insurance trust for managing insurance proceeds upon a trigger event occurring;
  • Draft Vendor Financing Agreements;
  • Draft Wills and Powers of Attorney for relevant stakeholders;
  • Review the estate plan of each business owner for inconsistency with the business succession plan

 

The need for business succession planning cannot be underestimated.  There have been far too many business owners that have unnecessarily incurred significant losses, or failed to secure valuable taxation benefits, due to ineffective planning.  You and your family need not be one of them.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Protecting your intellectual property

 

In this Age of Information, the protection of intellectual property has become a must for any serious business owner.

 

Intellectual property is a broad concept used to describe original creations of the mind which the law recognises as capable of being exclusively owned and protected.  These include such things as:

 

  • Copyright (music, literature, software and databases);
  • Patents (invention of new products or services);
  • Trademarks (logos and brands);
  • Designs (the shape, configuration or appearance of a product);
  • Plant breeder’s rights (new artificially created plant varieties);
  • Artistic creations (drawings, paintings and sculptures);
  • Circuit layout design rights (integrated circuits and computer chips).

 

Many people don’t realise that the mere act of registering a business name, company name or domain name does not actually give them ownership rights over that name.  Without taking additional steps (such as registering the name as a trade mark), you can easily find your business, company or domain name actually being owned by someone else!

 

There can be potentially disastrous consequences for a business if it neglects to properly identify and protect its key intellectual property, such as the loss of a business name, loss of a competitive advantage or unique selling position, loss of a major revenue stream, reputational damage, loss of customers and increased competition from copy-cat operators.

 

Winthrop Mason Lawyers can help you avoid these pitfalls by:

 

  • Identifying all intellectual property (including trade secrets and confidential information) within your organisation;
  • Assisting in registering patents and designs with external patent attorneys;
  • Conducting searches for existing intellectual property rights to avoid infringement;
  • Devising internal strategies to help protect your intellectual property;
  • Drafting confidentiality or non-disclosure agreements to be used when dealing with others;
  • Ensuring all agreements have appropriate clauses to protect your intellectual property;
  • Renewing, amending and reviewing your intellectual property registrations;
  • Helping with the purchase, sale, transfer or licensing of your intellectual property;
  • Enforcing your intellectual property rights as against other parties;
  • Submitting objections with the Dispute Resolution Service Providers regarding domain names;
  • Advising on strategies to avoid potentially infringing others’ intellectual property rights;
  • Defending you in the event that an IP infringement claim is brought against you.

 

Intellectual property can be an extremely valuable asset for a business.  You have worked hard and invested a lot of money to create that value, so why would you not take steps to protect it?  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Share and unit sale agreements

 

One of the first things you will need to consider when buying a business is whether to do so by simply acquiring its assets or acquiring the shares in the company (or units in the unit trust) that own those assets.  There are different legal implications with the two approaches.

 

Many sellers prefer to sell shares in their company for tax and liability reasons, whereas many buyers prefer to simply acquire the assets to allow them to be selective as to which assets to choose, and to limit their liability exposure.  However, this should not be treated as a general rule because each transaction needs to be considered on a case-by-case basis.

 

Perhaps some of the most important things to understand when acquiring the shares are:

 

  • By owning the company directly, you automatically control everything it owns – that is, there is no need to identify each and every asset of the business and separately effect a  transfer of ownership of each asset;

 

  • In the same vein, you also become immediately responsible for all liabilities of the business, including any accrued liabilities (such as unpaid leave or superannuation entitlements for employees) or contingent liabilities (such as litigation, regulatory investigations and other legal liabilities);

 

  • Taxation obligations of the company will now become your responsibility, even if they were accrued prior to the date of transfer of ownership;

 

  • There is minimal business disruption because, from an outsider’s perspective (including government bodies such as ASIC and ATO), they continue to deal with the same legal entity;

 

  • There is no need to transfer contracts (such as employment contracts, leases, distribution agreements, license agreements, loan agreements, etc) into a new entity;

 

  • Prior to transferring the shares, it will be necessary to closely review all contracts, particularly as many of them contain provisions which deem a party to be in default if there is a substantial change in the ownership of the business for which prior consent has not been obtained;

 

  • All licences, permits and statutory approvals remain with the company;

 

Given the more significant legal and financial risks involved in acquiring a company’s shares, particularly in having to assume all actual and contingent liabilities, it is imperative that a buyer undertake a more in-depth level of due diligence than would normally be undertaken for an asset purchase.

 

You will also need to secure greater safeguards, such as in obtaining warranties and indemnities, restraint-of-trade, obtaining personal guarantees, securing seller financing, retaining part of the sale proceeds for any future claims, requiring performance bonds, opting for gradual ownership, and the like.

 

Winthrop Mason Lawyers can assist by:

 

  • Helping you decide whether to opt for a share (or unit) sale, or an asset sale;
  • Advising on the advantages, disadvantages and risks of each option;
  • Reviewing the Constitution and other governing documentation regarding the rules of sale;
  • Drafting a Share Sale Agreement (or Unit Sale Agreement, as the case may be);
  • Undertake all relevant steps associated with buying a business (see “Buying a business”);
  • Negotiating the share (or unit) sale;
  • Obtaining any necessary consents from third parties based on “change of control” provisions;
  • Facilitating the transfer of the shares in the company (or units in the trust, as the case may be).

 

As you can see, buying the shares of a company can seem like a more straightforward arrangement to an asset sale, but there are actually greater risks involved for a buyer.  The level of due diligence undertaken needs to be more comprehensive, and professional advice must always be sought.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Managing a business

 

Managing a business will have to be one of the most challenging, but personally gratifying, aspects of an entrepreneur’s life.  But while you are focused on generating revenue and minimising expenses, it is important to ensure that there are also appropriate strategies in place to manage risks.

 

Some of the more commonly relevant areas to consider are:

 

  • Regulatory risks – licenses, registrations, permits and other government requirements
  • Legal risks – product liability risks, public liability risks, litigation risks, etc.
  • Employment risks – contractual breaches, unfair dismissal, adverse action claims, bullying, harassment, discrimination, intimidation, etc.
  • Information technology risks – revenue recognition, licensing, automatic renewals, etc;
  • Intellectual property risks – loss of IP protection, registration, infringements, etc;
  • Workplace health and safety risks – workers’ compensation, injury risks, etc.
  • Commercial risks – whether the terms of agreements are fair and reasonable.

 

Some of the things you can do effectively manage these risks include preventative action (eg. drafting appropriate agreements that clearly articulate rights and obligations), education (eg. staff training on risk management), insurance (eg. public liability, professional indemnity and employment insurances) and documentation (maintaining proper registers, policies and other records).

 

Winthrop Mason Lawyers can help you by:

 

  • Conducting a legal risk management analysis of your business;
  • Applying for any necessary licenses, registrations or permits;
  • Providing training to management and staff on the key risks for your business;
  • Reviewing management and employment contracts to ensure they remain current;
  • Reviewing and renegotiating the terms of your insurance policies;
  • Drafting relevant HR policies and procedures (eg. Recruitment Policy, Induction Policy, Privacy Policy, Code of Conduct, Anti-Discrimination Policy, WH&S Policy, IT Usage Policy, Performance Management Policy, Training Policy, Conflict of Interest Policy, etc);
  • Defending your business in actual or anticipated litigation;
  • Negotiating a favourable outcome in any internal or external dispute.

 

We are happy to provide our services for a fixed fee, or under an ongoing retainer arrangement.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Franchises

 

Franchising is a way of conducting business in which the owner (franchisor) shares its brand, strategies and business model with others (franchisees) for an initial fee and ongoing royalties based on revenues.

 

The sorts of businesses that can be franchised are many, and may include such diverse areas as domestic services (Jim’s Mowing), coffee (Gloria Jeans), real estate (LJ Hooker), food (McDonalds), retail (Forty Winks), business services (Kwik Kopy), financing (Choice Home Loans), automotive (Toyota), and health and fitness (Fernwood).

 

The advantages and disadvantages of franchising

 

The main advantages of franchising are that, in most instances:

 

  • You are given access to a proven business model, saving you a lot of time and money;
  • You are immediately linked with a business with an established brand and reputation;
  • You are assisted with securing finance, site selection, lease negotiation, builder and shop fitter selection, as well as with purchasing stock, inventory and equipment;
  • You are given standard procedures, operating manuals and stock control systems;
  • You are provided with an established financial and accounting management system;
  • You are included in nation-wide or coordinated marketing initiatives;
  • You are provided with training and ongoing support;

 

The main disadvantages of franchising are, in most instances:

 

  • You are severely restricted in how you run the business because, as a franchisee, you will be required to strictly operate in accordance with the franchisor’s business model;
  • The success of your business will remain closely tied to, and be heavily dependent upon, the ongoing success of the franchisor’s business;
  • You are required to pay an initial lump sum to access the franchisor’s business model, and this amount can be quite significant depending on the business;
  • You are generally required to make ongoing payments to the franchisor (whether as royalties, for the provision of its ongoing support, for marketing, or some other stated reason);
  • You will be restricted in the geographical area in which you can operate your business;
  • You will be required to seek the permission of the franchisor if you decide to transfer or sell your business later on, and the sale process will be subject to the specific procedures set out in the franchise agreement;
  • You generally do not get to retain the business or its goodwill at the conclusion of the franchise agreement;
  • You will be subject to a “restraint of trade” obligation after you sell or terminate the franchise agreement.

 

The legislative framework

 

In Australia, the laws governing franchising are primarily found in the Trade Practices (Industry Codes – Franchising Regulations 1998), which includes the Franchising Code of Conduct overseen the by Australian Competition and Consumer Commission (ACCC).

 

The Franchising Code of Conduct requires franchisors to give prospective franchisees the following documents at least 14 days before signing the agreement or paying non-refundable money:

 

  • Franchising Agreement in final form – setting out the parties rights and obligations;
  • Disclosure Document – setting out all key information about the franchise;
  • Franchising Code of Conduct;

 

The Disclosure Document would be required to include such information as:

 

  • Franchisor’s name, ACN/ABN, business address and phone number;
  • Description of the business;
  • Name, position, qualification and business experience of each officer of the franchisor;
  • Details of any current legal proceedings (civil or criminal);
  • Whether the franchisor or any of its directors has been convicted of a serious offence or been bankrupt in the last 10 years;
  • Details of existing franchises – number, location and contact details;
  • Details of past franchises – transferred, terminated, ceased or not renewed;
  • Whether the franchise offers an exclusive or non-exclusive territory;
  • Details of the franchisor’s requirements for supply of goods or services;
  • Obligations in relation to marketing and other cooperative funds;
  • Details of required payments – prepayments, establishment costs and ongoing costs;
  • Franchisor’s obligations (eg. training and ongoing support);
  • Financing arrangements; and
  • Earnings information or projections (if possible).

 

The franchisor must ensure that the prospective franchisee is given reasonable opportunity to read and understand the Franchising Agreement, Disclosure Document and Franchising Code of Conduct.

 

There is a seven (7) day cooling off period, running from the earlier of when the franchisee entered into the agreement or made any payment of money.

 

Other documents that would normally be produced are:

 

  • Confidentiality Agreement – protects the franchisor’s intellectual property even if the parties do not proceed;
  • Deed of prior representations – this reduces to writing all material pre-contractual representations made by the franchisor and its agents, if any;
  • Statement of independent legal advice – confirms that the franchisee has had the benefit of seeking legal advice before committing to the franchise agreement;
  • Statement of independent business advice – confirms that the franchisee has had the benefit of seeking business advice before committing to the franchise agreement;
  • Statement of independent accounting advice – confirms that the franchisee has had the benefit of seeking accounting advice before committing to the franchise agreement;
  • Operations Manual – sets out in detail how the business is to be conducted day-to-day;
  • Lease or Agreement for Lease – where the franchisee leases from the franchisor.

 

Common franchising issues

 

It is not at all uncommon for disputes to arise after the franchise agreement is entered into, particularly where the business is not performing as the franchisee has expected.  The most common franchising issues are:

 

  • Earnings or profitability of the franchise business;
  • Initial and ongoing costs payable by the franchisee;
  • Growth estimates of the franchise business;
  • Ownership and value of the goodwill;
  • Availability of stock, supplies or new product lines and services;
  • Availability of new territories;
  • Exclusivity of allocated geographical territories;
  • Scope of support to be provided by the franchisor;
  • Marketing and advertising of the franchise;
  • Future saleability of the franchise business;
  • Rights of renewal of the franchise agreement;
  • Restrictions around termination or sale of the franchise business.

 

It is, therefore, important that the parties take great care in clearly outlining their respective rights and obligations, and to seek appropriate legal, business and accounting advice in order to ensure that their interests are adequately protected.

 

More information

 

  • For more information about buying a business (franchise or otherwise), go to “Buying a business” (link)
  • For more information about transferring a business (franchise or otherwise), go to “Transferring a business”. (link)
  • For more information about selling a business( franchise or otherwise), go to “Selling a business” (link)

 

Winthrop Mason Lawyers can assist by:

  • Providing advice to franchisors on how to protect their business model and intellectual property, and avoid allegations of non-disclosure, misrepresentation and other contractual breaches;
  • Provide advice to franchisees to highlight potential legal risk areas and recommend strategies protect your interests before, during and after the franchise agreement takes its course;
  • Prepare or review franchise agreements, disclosure documents and other related material;
  • Negotiate revised terms of franchise agreements as necessary;
  • Undertake business due diligence on franchise business opportunities;
  • Advise on appropriate legal and financing structures for asset protection and tax minimisation;
  • Assist in the buying (franchisees) or selling (franchisors) of franchise businesses;
  • Act for franchisors or franchisees in legal disputes, including litigation;

 

Franchising is a heavily regulated area, and the financial and legal risks are high for both franchisor and franchisee.  For a no-obligation initial consultation, go ahead and give us a call.

Relevant Videos

Buying a business

 

Buying an established business, as opposed to starting a new one, has many potential benefits, such as having instant cash flow, client base and infrastructure.  However, this remains a high risk area for prospective buyers as there are many traps for the unwary. 

 

Without guidance from legal and accounting professionals in particular, the process can easily become a quick way to losing a lot of money.

 

There is a whole range of issues to consider, many of which may seem quite innocuous at first glance but can become hugely problematic if not thoroughly investigated.  The greater the stake, the fewer stones you will want to leave unturned – and the more safeguards you will need to build into the negotiation process to adequately protect yourself if things do not go according to plan.

 

Some of the key areas you will need to look at are:

 

  • Corporate governance – Constitution, Minutes of Meeting, Shareholder Register, etc.
  • Business structure and asset protection strategies
  • Seller – identity of stakeholders, reason for selling, family disputes, etc.
  • Customers – customer list, key customers, credit policy, aged debtors, discounts, etc.
  • Suppliers – supplier list, key suppliers, terms of trade, aged creditors, discounts, etc.
  • Revenue – revenue recognition, sources of revenue, consistency and quality of revenue, apportionment, etc.
  • Expenses – fixed and variable expenses, staff expenses, capital expenditures, depreciation, trends, apportionment, etc.
  • Cash flow – quality and consistency of cash flow, operating, financing and investing cash flow, etc.
  • Taxation – income tax, CGT, stamp duty, tax losses, etc.
  • Assets – tangible vs intangible assets, goodwill, ownership and licensing, encumbrances, market value, plant and equipment, write-offs, etc.
  • Liabilities – loans, leave entitlements, outstanding debts, off-balance sheet liabilities, etc.
  • Accounts – budgets, statutory records, income tax returns, BAS, management accounts, etc.
  • Employment – employee list, key persons, awards, enterprise agreements, bonuses, unpaid entitlements, restraint of trade, complaints, disputes, etc.
  • Contracts – employee, management, distribution, supplier and outsourcing contracts, etc.
  • Leases – rent, duration, options, zoning, security, charges, “make good” obligations, landlord consent, mortgagee consent, transfer duty, etc.
  • Securities – mortgages, charges, guarantees, indemnities, etc.
  • Insurances – public liability, professional indemnity, workers’ compensation, business and key person insurances, premiums, past and present claims, etc.
  • Information technology – licences, maintenance agreements, etc.
  • Intellectual property – list of IP, ownership, registration and protection, domain names, etc.
  • Litigation – actual and threatened litigation, complaints, settlements, regulatory sanctions, etc.
  • Workplace health & safety – accident reports, investigations, inspections, convictions, etc.
  • Superannuation – SGC, superannuation funds, default funds, etc.
  • Projects – tenders, quotations, acquisitions and other transactions (past, present & future), etc.
  • Environmental – licences, registrations, approvals, inspections, investigations, etc.
  • Other – external consultant reports, compliance audits, etc.

 

In practical terms, you will not have the time, energy or resources to put everything under the microscope.  The trick is to identifying which areas represent the biggest risks and biggest opportunities for your business, and work down from there.

 

We would generally recommend that you take your time during the negotiation phase – this will give you room to properly consider the seller’s terms, review your options and conduct any necessary additional investigations.  Rushing the process generally does not work out well for the buyer.

 

You should always be prepared to walk away if you’re not happy with the deal.

 

Winthrop Mason Lawyers can assist in your decision-making by:

 

  • Advising on an appropriate business structure for yourself as the new owner;
  • Considering whether to buy the business assets only, or the shares in the company;
  • Conducting legal due diligence on the business (eg. obtaining financial reports and bank statements, reviewing minutes of meetings, perusing the terms of employment contracts, perusing supplier and other agreements, checking licences and registrations, verifying title on business assets, investigating intellectual property rights, evaluating terms of current and future lease arrangements, assessing appropriateness of insurance policies, etc);
  • Investigating any potential regulatory issues, legal proceedings and unlitigated disputes;
  • Arranging the transfer of intellectual property rights, such as trademarks and domain names;
  • Advising on the reasonableness of valuations for goodwill, stock, plant and equipment;
  • Preparing the Business Sale Agreement;
  • Negotiating specific terms and conditions (including confidentiality and restraint of trade clauses, material adverse changes, false or misleading representations, etc);
  • Advising on non-standard arrangements (such as vendor financing, training, trial periods, etc);
  • Minimising exposure to legal, regulatory, taxation and financial risks;
  • Advising on terms of financing arrangements (including vendor finance, if applicable);
  • Assist you to safely terminate the Business Sale Agreement if you no longer wish to proceed;
  • Conducting an independent third party “reality check” generally.

 

We would be happy to liaise directly with your accountant, business adviser and/or financial planner to ensure that your interests are adequately covered when arranging to buy a business.  For a no-obligation initial consultation, go ahead and give us a call.

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Stakeholder agreements

 

In any business, it is important that the rights and responsibilities of the relevant stakeholders are clearly articulated in order to minimise the risk of dispute or litigation – or at least to improve your prospects of successfully defending them should court proceedings ensue.

 

A typical business has multiple stakeholders.  Some of them are internal (such as directors, shareholders, managers and employees), while others are external (such as landlords, strategic partners, suppliers, distributors and independent contractors).

 

There is a wide range of stakeholder agreements to consider depending on the size and nature of your business.  Winthrop Mason Lawyers can assist with such agreements as:

 

  • Shareholder Agreements
  • Partnership Agreements
  • Joint Venture Agreements
  • Independent Contractor Agreements
  • Sub-Contractor Agreements
  • Employment Agreements
  • Consultancy Agreements
  • Agency Agreements
  • Confidentiality Agreements
  • Guarantees & Indemnities
  • Licence Agreements
  • Distribution Agreements
  • Lease Agreements
  • Franchise Agreements
  • Service Agreements
  • Direct Debit Agreements
  • …..And many others

 

Likewise, if you are presented with any of these agreements, make sure that you do not sign it until you have had the benefit of independent legal advice.  We can review the contract for potential risk areas and even negotiate necessary changes to the terms.

 

There is considerable wisdom in the old adage, “it is better to be safe, than sorry”.  For a no-obligation initial consultation, go ahead and give us a call.

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Transferring a business

 

At some point, many business owners will want to transfer their business to someone else – whether due to illness, retirement, cash flow needs, new opportunities, or some other change in personal circumstances.

 

There are a number of ways that you can transfer your business:

 

  • You can sell the assets of the business;
  • You can sell the shares in the company which runs the business;
  • You can assign ownership of the shares to another (other than as a sale);
  • You can arrange for a gradual ownership of the business over a period of time;
  • You can transfer the business to your SMSF;
  • You can merge the business with another;
  • You can liquidate the assets individually;
  • You can “hire out” the business to someone else;
  • You can transfer the lease on the business premises to someone else (for simple businesses).

 

If you are looking to transfer by selling the business (whether assets or shares), you should go to “Selling a business” for further details.  [link]

 

If you are looking to close your business completely, you should go to “Closing your business” for further details. [link]

 

The transfer may take place by way of a business partner buy/sell agreement, management buy-out, employee buy-out, assignment to family members, private sale to a third party, or some other means.

 

Winthrop Mason Lawyers can assist by:

 

  • Advising you on which business transferring option would be most suitable for you;
  • Advising on the advantages, disadvantages and risks of each option;
  • Facilitating the transfer of the business on your behalf;
  • Negotiating all the relevant terms and conditions of transfer to minimise your risk exposure;
  • Liaising with your accountant, business advisor or financial planner to minimise taxation and other financial consequences (such as obligation to honour existing employee entitlements).

 

For a no-obligation initial consultation, go ahead and give us a call.

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Selling a business

 

You have worked extremely hard to build your business, and now it’s time to reap the fruits of your labour.  What are some of the important legal issues you need to consider when selling your business?

 

While price is an important consideration, it is foolish to turn down a reasonable price (with fair and reasonable terms) in pursuit of the theoretical “top dollar”.  Experienced business owners know that there are other factors that may equally be important such as:

 

  • The taxation consequences of the sale, particularly income and capital gains tax (the higher the income tax and CGT, the less money you will actually end up at your disposal);

 

  • How demanding is the buyer (the more work they force you to do, the more costs you will be incurring during the negotiation process);

 

  • The speed at which the business transfer can take place (the sooner you get your money, the sooner you can start investing it in some other income-producing opportunity);

 

  • The level of contractual, legal, regulatory and financial risks that the seller is being asked to assume (these risks can become costly, so the lower the risks, the better it is for you);

 

  • The degree to which you are being required to continue to be involved in the business (the more time you have to spend in the business, the more money you lose).

 

Each of these can have significant financial consequences to a seller, so never get too hung up on trying to get the highest possible price for your business.

 

Below is a simple checklist of legal issues you will need to consider when selling your business:

 

  • Material misstatements – profitability, customers, prospects, lease terms, staffing, etc.;
  • Employees – continuity of employment, redundancies, leave and bonus entitlements, etc;
  • Purchase price – amounts and dates in which purchase price will be paid, etc.;
  • Leasing – security deposit, landlord consent, mortgagee consent, guarantees,etc.;
  • Vendor financing – amount, terms, duration, security, other conditions of financing, etc;
  • Post-sale conditions – ongoing support and training, retentions, confidentiality, etc;
  • Restraint of trade – reasonableness in terms of time, geography and scope of activity;
  • Change of ownership – some commercial contracts require the other party’s consent when changing control of a business, otherwise you will be in default of the contract;
  • Taxation – income tax, GST, stamp duty and CGT implications of selling the business;
  • Warranties, indemnities and guarantees – scope and duration;
  • Limitation of liability – conditions surrounding disclaimers and limitation clauses;
  • Notifications – employees, suppliers, customers, landlords and regulators (eg. ASIC and ATO);
  • Insurances – workers’ compensation, public liability, professional indemnity, etc;
  • Documentation – corporate governance records, financial records, accounting records, asset registers, customer lists, supplier lists, issues register, etc.

 

Winthrop Mason Lawyers can assist by:

 

  • Considering whether to sell the business assets only, or the shares in the company;
  • Arranging the transfer of intellectual property rights, such as trademarks and domain names;
  • Advising on the reasonableness of valuations for goodwill, stock, plant and equipment;
  • Preparing the Business Sale Agreement;
  • Negotiating specific terms and conditions (including confidentiality and restraint of trade clauses,

material adverse changes, false or misleading representations, etc);

  • Advising on non-standard arrangements (such as vendor financing, training, trial periods, etc);
  • Minimising exposure to legal, regulatory, taxation and financial risks;
  • Advising on terms of financing arrangements (including vendor finance, if applicable);
  • Assist you to safely terminate the Business Sale Agreement if you no longer wish to proceed;
  • Conducting an independent third party “reality check” generally.

 

Going at this process alone might seem cheaper, but it is often the most costly of all approaches in the long run.  We would be happy to liaise directly with your accountant, business adviser and/or financial planner to ensure that your interests are adequately covered when selling your business.  For a no-obligation initial consultation, go ahead and give us a call.

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Closing a business

 

So you’re thinking of closing down your business?  Assuming that selling [link] or transferring [link] the business are not viable options, there are still a few important things to consider before you can go ahead and close the doors:

 

  • Commence disposing or liquidating business assets (including inventory);
  • Consider your ongoing obligations to employees post-closure (PAYG, FBT, super and Eligible Termination Payments) and devise strategies for managing them;
  • Notify your key customers, distributors and suppliers of the impending closure;
  • Negotiate with your landlord to transfer the lease to another, or otherwise terminate;
  • Enter into repayment plan with the ATO in relation to any outstanding tax liabilities;
  • Cancel your business or trading name with ASIC;
  • Cancel your ABN, GST and other tax registration with the ATO;
  • Close your bank accounts (including payout any outstanding bank loans);
  • Pay out any remaining debts and other liabilities to third parties;
  • Arrange for all utilities to be disconnected (eg. electricity, telephone, internet, etc);
  • Apply to de-register your company with ASIC;

 

If you are experiencing financial hardship and you having been trading as an individual – whether as a sole trader, partner or trustee – then you will also need to obtain specialist advice on the potential application of bankruptcy laws.  Some options that may be available for you include:  informal arrangements with creditors, declaration of intention (DOI) to present a debtor’s petition, debt agreement, personal insolvency agreement and bankruptcy.

 

If you are experiencing financial hardship and you having been trading as a company – whether as a company per se or as a corporate trustee – then you will also need to obtain specialist advice on the potential application of corporate insolvency laws.  Some options that may be available for you include: informal arrangements with creditors, voluntary administration, receivership and liquidation.  See “Insolvency” [link] for further information.

 

Winthrop Mason Lawyers can assist by:

  • Advising on an appropriate legal course for closing your business;
  • Advising on your ongoing legal obligations to your employees after business closure;
  • Advising on your personal duties as company director where the company is deemed insolvent;
  • Advising on the implications of asset protection strategies (individual and corporate);
  • Applying for cancellation of business name and de-registration of company with ASIC;
  • Applying for cancellation of ABN, GST and other tax registration with the ATO;
  • Assisting with the disposition of business assets, including real estate and inventory;
  • Negotiating with landlords, creditors, government bodies and other stakeholders;
  • Helping to manage the relevant personal or corporate insolvency process on your behalf;
  • Defending your interests in threatened or actual legal proceedings.

 

We appreciate that this is likely to be a very difficult period for you, so our role is to make the process as quick and hassle-free as possible.  For a no-obligation initial consultation, go ahead and give us a call.

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