Small Business
Many people see a small business as the way to secure their financial independence and lifestyle. Running your own business can be very satisfying. However, it can be fraught with pitfalls for the unwary. Only a quarter of small business people seek professional advice before starting their own business.

This may explain why three-quarters of small businesses fail within the first five years.
The information in this brochure highlights some of the issues you need to consider before you invest your time and money in a small business venture. Discuss these issues with your lawyer and accountant. Their advice can be invaluable for the future success of your new business.

Buying or setting up a small business
Choice of business structure
There are four main business structures for a small business:

• sole trader;
• partnership;
• company; or
• trust.

Choosing the right operating structure (or combination thereof) before you start a business is critical. Get professional advice on which structure best suits your needs. There may be specific legislation relating to the type of business you wish to start which restricts the choice of structure. Your lawyer will consider the type of business you're starting and your individual circumstances to help you weigh up factors such as the required capital, how much expertise you need and your business planning.

Each business structure has its own advantages and disadvantages. They will all affect the following in different ways:

• your taxation position;
• personal legal liability;
• the expected lifespan of your business;
• the availability of capital; and
• the flexibility of business operations.

Documentation
If you are buying an existing business you should receive the following documents from the seller:

• a form 19 Estate Agents Act 1990 (Vic) giving details of the financial position of the business;
• a section 51 statement indicating whether or not the agent is going to help you find finance;
• a contract;
• a transfer of the registered business name (if applicable);
• a transfer of any permits or licences (if applicable); and
• a transfer of the lease of the premises and/or any equipment.

Do not sign any documentation without first consulting your lawyer and only pay money to a lawyer or licensed real estate agent.

The contract
Do not sign a contract without first having it checked by your lawyer who will ensure the contract reflects your expectations and all legal requirements are met.

The contract should include:

• a full description of the business;
• the business name and whether or not it's registered;
• allocation of the sale price — how the price was determined between goodwill, stock, plant and equipment and possibly restraint of trade requirements;
• provisions for the purchase of all the stock or the stock up to an agreed value. It is common practice to employ a professional valuer to fix a value;
• warranties regarding the sales performance of the business; and
• a provision that the sale is subject to you obtaining the necessary finance and assignment of any applicable lease.
• It may be necessary to have special conditions inserted into the contract to assist your new business during the transition between owners. These can include:
• a restraint on the seller to prevent them from opening a similar
• business in competition after finalisation of the sale to you;
• a requirement for the seller to work in the business for a set period of time after settlement, to introduce you to suppliers and customers and assist in the day to day running of the business; and
• the method of adjusting the pay entitlements of continuing employees.

Franchising is a form of business enterprise where a company (the franchisor) grants to the franchisee the right to use a name, a product or a process in return for a fee. A franchise agreement may place limitations on your sales territory, your right to own a similar business elsewhere, your marketing strategy and the suppliers you use. It is important to discuss any franchise agreement with your lawyer before signing as the unwary franchisee can face many problems and hidden costs.

All franchise agreements renewed or entered into after 1 October 1998 must comply with the Franchising Code of Conduct.

The code of conduct requires franchisors to disclose information about their business experience and provide a summary of both parties' obligations. A franchise agreement should contain:

• the fees you will pay;
• the length of the franchise;
• the level of control the franchisor can exert over the business; and
• the licence to use the trademark or business name.

Leases – Premises and equipment

Small business business proprietors choose to lease premises for many reasons, including capital and cash flow limits and size and location flexibility. If you rent the business premises or the equipment, it is crucial to be familiar with the legal aspects of tenancy and the terms of the lease.

Your lawyer can help negotiate a lease in your best interests and advise on:

• lease incentives;
• rental increases;
• the period of the lease;
• options to renew;
• the right to assign (transfer) or sublet;
• the outgoings to be paid by you;
• the transfer of licences and permits; and
• whether the lease must comply with the Retail Tenancies Act 2003.

Zoning, permits and licences
Municipal planning control legislation regulates where various businesses can operate and under what conditions. The location of your business must adhere to local zoning regulations. Often you will be required to obtain certain permits, licences or registration certificates in order to operate your business. You must ensure the business you are planning on purchasing or starting can operate legally from the proposed premises. Depending on your type
of business you may need to acquire BYO liquor permits, food premises registration, factory registration and zoning permits or tobacco registration. Your lawyer can advise you on what permits or licences your business may require.

Finance
Your lawyer, together with your accountant, can advise on the capital required to establish your business. They can advise on The different types of finance available and the extent of your personal obligations under any loan agreement or guarantee you sign. Some businesses, especially those employing substantial numbers of people, may be eligible for federal or state government assistance.

Insurance
Take out a suitable insurance policy to protect the assets of the business in case of damage or destruction by a fire or other insurable risk. Your lawyer can advise on matters such as your duty of disclosure and when the risk of loss or damage to property passes to you.

Operating a small business
There are many laws that affect the running of a small business. By establishing an ongoing relationship with a professional adviser, you increase your chances of survival and success in your business.
need to register the logo or symbol as a trademark. When looking to protect your ideas against reproduction, consult your lawyer or a patent attorney. The area of intellectual property, which deals with designs, patents and trademarks, is a very complex and specialised area of law.

Employer/employee relations
 
Every employer has an obligation to:

• provide a safe and healthy workplace and a safe system of work;
• register under Workcover;
• negotiate an individual or collective employment agreement and comply with the terms;
• be aware of awards, customs and practices of your particular business in relation to wages, hours, holidays, trade unions and occupational health;
• comply with equal opportunity, anti-discrimination and unfair dismissal legislation; and
• contribute a percentage of each employee's earnings towards a complying superannuation fund.

If you are contacted by the Child Support Agency to deduct child support from an employee's wages, you will need to know the extent of your legal obligations.

Financial management
Recent decisions of Australian courts and changes in legislation have imposed higher duties on company directors. Company directors need to re-examine their roles and responsibilities. They can be personally liable for the debts of the company if the company continues to trade when it is unable to meet its debts in the normal course of business.
Your lawyer can advise on your management practices, ways of improving your debt recovery procedures, negotiating with creditors, potential expansion, takeovers and amalgamations.

If you are experiencing financial difficulty, a lawyer can advise on ways to deal with the problem.

Protection of your ideas against reproduction
You may be entitled to claim copyright in your work, apply to patent an invention or register a design concept or manufacturing process. To protect your exclusive right to use a logo or symbol you need to register the logo or symbol as a trademark. When looking to protect your ideas against reproduction, consult your lawyer or a patent attorney. The area of intellectual property, which deals with designs, patents and trademarks, is a very complex and specialised area of law.

Consumer protection, trade practices and import and export regulations
How you conduct your business and the standard of goods and services produced must comply with consumer protection legislation such as the Fair Trading Act 1999 (Vic) and the Trade Practices Act 1974 (Cth). Trade practices which reduce competition or lead to a misuse of monopoly power are illegal, as is deceptive conduct in trade and business. The consequences of failing to comply with consumer protection legislation can be quite severe, especially for small businesses.

There are a number of trade regulations which affect small business. These include regulations on prohibited and restricted substances, quarantine, and moving cargo securely. If you are exporting goods, the laws relating to these matters in the country of destination will also need to be observed.

Your lawyer can advise you on how to conform with the legislation and regulations in this area and implement strategies within your business to ensure compliance.

Taxation
Most businesses are likely to be affected by both federal and state taxes.
Federal taxes: income tax, capital gains tax, fringe benefits tax, goods and services tax.
State taxes: stamp duty, payroll tax, debits tax, land tax.
There are a number of legitimate ways in which some taxes may be minimised, such as claiming all allowable deductions and concessions or by restructuring the business. However, legislation places the onus for tax decisions squarely on the taxpayer and advice from a tax expert is essential.

Arrange a consultation with an experienced solicitor.

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