10 Ways to Avoid a Joint Venture Fail

10 Ways to Avoid a Joint Venture Fail

10 Ways to Avoid a Joint Venture Fail

Joint Ventures are great for collaboration

Working together with another like minded entrepreneur is a clever way to accelerate business growth, which is why joint ventures remain a popular way for individuals or organisations to collaborate. But before you ‘Give it Away’ (as there’s always room for a Red Hot Chilli Peppers reference in a legal consideration blog), it’s critical to shore up your joint venture’s credentials to ensure a smooth, surprise-free partnership from beginning to end. In this Onyx Legal blog , we highlight 10 ways to avoid joint venture fails. [Ok, so we ended up with 11 – Ed.]

Joint Ventures are usually for a specific and limited project, goal or purpose and may also be limited by time.

1. Who is party to the joint venture?

Establishing a joint venture is no time to be carefree with the details.

Before entering into a joint venture, establish the legal identity of all parties. This means performing ABN and other similar regulatory checks. It might also mean checking driver’s licence details of individuals. 

A client recently came to us with a proposed joint venture, and we could not establish who would pay him the $400k that he expected to receive as his share of profits. The deal fell over when the other party also failed to establish who would pay that sum.

2. How Should You Structure a Joint Venture?

It is important to understand that joint ventures and partnerships are different structures.

A partnership is a long-term working proposition with full legal liability – a commitment to working together into the future.

A joint venture is project or purpose-focused, and facilitates separate parties to continue working on other businesses simultaneously. Joint ventures can be done by contract with each party paying their own tax, but one of the parties must hold the assets relating to that venture (paperwork, accounts, assets) unless it is established in its own identity.

3. What do you want to achieve with your joint venture? 

It’s easy to get caught up in the potential of success and innovation at the beginning of a joint venture, which is why understanding what you want to achieve from the collaboration is so valuable.

We’ve observed web designers, marketers and programmers enter joint ventures expecting to receive a share in profits at the end of the build, only to have ‘goal posts’ moved so regularly they exit the venture – leaving thousands of hours of unpaid labour in their wake.

Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment.

Put together a clear written agreement covering all the moving parts of your proposed joint venture, and allowing some flexibility for change as your venture grows. 

have a written Joint Venture agreement

Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment

4. How long should your joint venture last?

How long is a piece of string?

There’s no single answer to this question; the duration of your joint venture is based on the purpose of the project.

Will you be building something – a house or a piece of technology?

Are you going to be running a developing a piece of software or an education program together?

If you are building or developing something together the period of the joint venture might be the development period, and once you have a completed MVP (minimum viable product) you might roll it over into a company and start building a team to run it. 

Where you’re entering a revenue share deal, it might be a two year focused time frame for growing the base income of the business. 

Whilst you do not need to define a hard ‘end date’ to your joint venture in documentation, it’s useful for all parties to understand the purpose of the relationship, and a general timeline to completion of the project, and what completion looks like.

We regularly write in rolling successive terms, such as a one year agreement that rolls over for another year unless someone terminates before the end of the year. 

5. How can disagreements be dealt with or avoided? 

A joint venture agreement should be robust, providing options should parties fail to perform their role, or decide to walk away from the project.

In collaboration with your lawyer and with your project’s specific risks and opportunities in mind, carefully identify pressure points that require clarification and consider an approach to realistic exit should your working relationship end unexpectedly before the project is completed.

Good joint venture agreements remove the element of surprise from projects, leading to higher rates of completion and reduced conflict.

For a two party joint venture, it is a great idea to have some way of independently breaking deadlocked decisions. You could use a trusted third party as a referee, such as a mentor or board adviser. You could also allocated areas of decision making to each party that give one person a try breaking vote on those issues.

6. What if someone wants out if the joint venture early?

Build the possibility of a party leaving the joint venture into the structure of the joint venture to avoid future problems.

The best laid plans of mice and men often go awry, and a party may need to exit the joint venture for any number of reasons. Family life may be under pressure, there could be financial considerations, or health issues to address.

Fairness is key when devising a graceful exit from a joint venture. 

7. What if you want someone else to join in the venture part way through? 

Joint ventures can be created to allow for the possibility of other experts parties joining the project. Sales professionals are typically invited to join in after an MVP is achieved. 

It’s important that you’re working with a lawyer to structure your joint venture for all possible contingencies … which could  include growing your collaborative group.

8. Who will do what in your joint venture?

Formalising a joint venture is no time for pussyfooting around responsibilities or making assumptions about role workloads.

Success in your project relies on clear delegation of work, as all parties will have other responsibilities that could take their attention, in addition to the joint venture.

It’s important to know exactly who will be paying the bills and who will be responsible for particular milestones.

Having difficult conversations early on about the work or outcomes due for completion by exact parties of the venture will save plenty of strife when life gets busy or timelines become blown-out. 

9. What happens if someone fails to live up to their responsibilities in the joint venture?

As with any project, it’s possible that the whole thing could become scrambled eggs.

Of course you don’t anticipate that will be the outcome, but it’s prudent to plan for unlikely circumstances. Think about COVID-19, a virus which has changed the trajectory of the global economy in the space of months. It was nigh on impossible to imagine the world shutting down a year before the corona virus; but there it is.

People can fail to live up to the responsibilities in a joint venture for a variety of reasons, including circumstances beyond their control.

Build into your joint venture contingencies around ‘failure to perform’ and decide what the dissolution of the relationship should look like. Who gets what? What will trigger the dissolution? How will any debts be paid?

These are important matters to discuss with your collaborative partners and your lawyer.

10. Who retains any intellectual property created during the venture, once it ends?  

Often a complex matter to consider, the ownership of intellectual property is the cause of many disagreements.

If the joint venture does fail, there is likely to be an argument about intellectual property and who owns what. If you can work out IP ownership at the commencement of your joint venture, you’ll design a logical way of dealing with the matter if you fall out.

Maybe each party only walks away with what they contributed; maybe each party walks away with one complete copy of the created intellectual property.

Certainty around what will happen at the time of the exit gives everyone confidence and reduces the risk of legal action. 

11. How will the project be managed?

A joint venture teaches entrepreneurs a whole lot about project management and communication. There are many moving pieces you and your partners will need to consider:

  • planning
  • stakeholder relationships
  • reporting
  • regular meetings and agendas
  • cashflow 

While it is appropriate for different roles to be attributed, a single party needs to be appointed to ensure accountability across the whole of the joint venture. You will need someone with the energy and drive to ensure that things happen. 

Flexibility must be built into this role, and an allowance to break ‘deadlocks’ in decision making.

Many’s the time we have observed joint ventures fall apart when the directors of the governing entity failed to design a mechanism for change, independent of the warring parties. 

Joint ventures are a terrific way for business owners to collaborate, to stretch their skills, test ideas, and to innovate. A well-designed joint venture allows for the clear division of work and responsibility, provides safeguards for failure and disappointment, and deals with the sticky stuff of business relationships before they become complex.

At Onyx Legal we support business owners to come together with like-minded partners in joint ventures, creating structures that respond to your unique projects, packed with safeguards to keep you as confident and safe as possible.

Our key takeaway for joint ventures?

Think on it.

Clarity at the beginning of a project leads to better results in a joint venture, and the chance everyone will meet or exceed their expectations. 

How can Onyx Legal help you?

Joint ventures have a contractual foundation.
You can form a joint venture with a handshake, or you can put a little thought into your expectations and negotiate an agreement that clearly sets out each party’s rights and obligations, as well as exit opportunities. We also highly recommend incorporating sensible dispute resolution mechanisms that will support the joint venture moving forward. If you are already in a joint venture, we can review the contract and clarify any legal rights and obligations you don’t understand.
The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

When things occur in 3s they tend to attract our attention.

In last few months we’ve encountered three people who were stunned to find out the foundations they had formed with all good intents and purposes were in fact, fiction.

Unfortunately, we haven’t been able to persuade any of these misguided individuals into telling me where they got their information in the first place. In fact, when we told the first prospective client about the nebulous nature of his foundation, he blocked our phone number and emails.

When a long standing business client of ours approached us for legal advice just after Christmas, querying the legality of providing intellectual property as a volunteer for the self-assessing tax-exempt private foundation he had established after significant research, we balked.

How can educated, intelligent individuals be misguided into believing that “personal sustenance” of the founder is a legitimate, tax free distribution? Or that a foundation is legitimate when its founding documents specifically deny the rule of law?

If you are failing to lodge tax returns and claiming your foundation is private, tax exempt and self-assessing, at some stage you are likely to get caught for tax avoidance.

IF IT SOUNDS TO GOOD TO BE TRUE…

We should start by saying that we are not tax lawyers and the statements in this article are for general educational and informational purposes only.

If you are an individual in Australia receiving more than minimum wage, you will be paying some tax. If you operate any type of business in Australia, other than an international business which uses related cross boarder transactions and tax treaties to minimise tax, then your business will be paying tax on any profits.

Even charities and not-for-profits are not exempt from every form of tax, and they still submit annual reports to substantiate income and liabilities.

Although it is not uncommon for people to look for ways to minimise their tax obligations, if someone is suggesting that you can establish a foundation for the purpose of avoiding paying tax, please do not believe them!

No matter how a foundation is established, if your personal expenses such as your rent or mortgage, car payments and food are being covered by the foundation, then those payments are likely to be considered your personal income, and taxable.

In 2019 the Supreme Court of Tasmania rejected an argument proposed by members of the Beerepoot family that they were not obliged to pay tax because they didn’t own anything. They argued their possessions belonged to God and to be answerable to an external entity such as the government, would be going against God. Their failure to lodge tax returns did not absolve them of their obligations, and they were each ordered to pay more than $1 million in taxes and penalties.

How to Tell if Your Foundation is a Fake?

If your foundation is not recognised under a law, then it is fake. Start by reading the founding document.

Having three very similar founding documents to reference, there are clearly a couple of pro-forma template “Articles of Association” going around to help people establish fake foundations. “Establish” might be a strong word because the documents we’ve seen don’t create a foundation or other entity at all.

Some of the words that should trigger alarm bells are:

  • sentient living souls
  • natural sentient people
  • divine attributes
  • tax-exempt
  • non-government organisation
  • sovereign rights of humankind
  • environmentally sustainable self-sufficiency of humankind
  • imprescriptible and unlegislatable
  • domicile on the land mass commonly known as Australia
  • involuntary servitude
  • unalienable rights for sustenance
  • bona fide compensation for services rendered, expenses incurred, sustenance or surplus on behalf of the foundation
  • not to be lodged with any public or government agency
  • autograph

Each of the documents we have received includes at least one paragraph which claims that being human creates some form of natural right which cannot be removed or controlled by government or law. This is an extension of the “Freeman on the land” philosophy which says essentially that “the law doesn’t apply to me unless I say it does”.

Here is a sample:

‘Natural Innate Status/ Sovereign Rights’ mean the natural rights of private men and women, their divine attributes, to love, to liberty, to independence, to privacy, to remain silent, to give and to receive, to apply their natural energy, to think, to breath, to treat others the same way as they would like to be treated, to apply effort and to work, to take decisions, to increase their capacity, and to reserve all natural divine law rights which are unalienable, imprescriptible and unlegislatable, and to express and include their soul infused nature.

Don’t be fooled.

Unless you have some diplomatic immunity from another country, when you are in Australia, Australian law applies to you, over and above any spiritual or religious belief you may have.

There is no such thing as an “innate status” or “sovereign” right of an individual at law.

Some of the wording of the Articles assumes that “privacy” is some form of enforceable right separate from law, and something that validates keeping foundation records private.

Here is another sample:

The Foundation is a private Foundation and as such operates privately, not revealing any of the private information related to its operation to any public or government agency or any purported legal authority.

One of the side effects of attempting to exclude the law is the creation of something without legal basis or enforceability. The privacy of personal information is protected by law, but there is no inalienable right to privacy of any entity or foundation by virtue of its alleged existence.

If you don’t notify a government agency of the establishment of a legal entity separate from you as an individual, there is no separate legal entity and you as an individual are personally responsible and liable for any action taken or omitted by, for or on behalf of the fake foundation.

a self-assessing tax-exempt private foundation is no more than a house of cards

But it’s a Non-Government Organisation (NGO)!

What is an NGO?

An NGO can refer to different types of organisations depending on where you are in the world.

Generally speaking, they refer to organisations legitimately established somewhere in the world, which may work with government, or with government funding, to provide community support in some form or another. International aid organisations are often NGOs.

In relation to the United Nations, NGOs can be described as “any non-profit, voluntary citizens’ group which is organised on a local, national or international level. Task-oriented and driven by people with a common interest, NGOs perform a variety of service and humanitarian functions, bring citizen concerns to Governments, advocate and monitor policies and encourage political participation through provision of information. Some are organised around specific issues, such as human rights, environment or health. They provide analysis and expertise, serve as early warning mechanisms and help monitor and implement international agreements. Their relationship with offices and agencies of the United Nations system differs depending on their goals, their venue and the mandate of a particular institution.

Just because you call something a non-government organisation does not mean that it has no obligations at law. NGOs in Australia are established and recognised legal entities, being either incorporated associations, public companies or registered foreign entities. All are registered and have reporting obligations. 

How to establish a Real Foundation

Under Australian law, you have three or four options to set up a real foundation, all of which involve the law and notice to a public or government agency. 

You can establish:

  • an unincorporated association (small local sporting or community clubs)
  • an incorporated association (state-based sporting or community groups or charitable organisations, also membership associations)
  • a company limited by guarantee (for national organisations, big or small)
  • a trust (often used by families or individuals wanting to establish a fund for contributing to charity)

None of those entities will be properly established without reference to the appropriate law. This is typically done within the founding document. Some examples include:

  • Subject to the Associations Incorporation Act 2009 (NSW)…
  • The company has all the powers of a natural person and a body corporate. That includes powers expressly or impliedly conferred by the Corporations Act 2001 (Cth) or by law. 
  • Subject to the laws governing trustees at the Place of Governing Law [which is then defined in the document]

Tax status is not independently chosen by the foundation.

Not-for-profit organisations must apply to the ATO for tax exemption, and it is generally limited to income tax exemption. So, GST (goods and services tax), PAYG (pay as you go) and FBT (fringe benefits tax) will usually still apply, and the foundation must report and meet its ongoing obligations. 

Genuine Belief in Creating a Better World

A strong theme in the foundation documents I have read is the intent to take action to create a better world for all humankind. That is an admirable goal. Unfortunately, the fake foundation is not the way to get there and is likely to create personal difficulties for you down the track.

If you’ve inadvertently been swayed into thinking you are doing something good for the world in establishing or becoming involved in one of these fake foundations, don’t worry. Take a deep breath and acknowledge that no one is perfect and all of us get caught out from time to time. Now you have the opportunity to do something about correcting your situation.

We strongly encourage every person who suspects they may have become involved in a foundation that displays any of the elements highlighted in this article to seek appropriate legal and tax advice. Now. 

How can Onyx Legal help you?

Get the Right Business Structure for You
Make a time to speak with someone in our team about what business structure fits for what you aim to achieve (avoiding the fake foundation) and we can help you get the right structure set up properly to avoid nasty surprises in the future. 
Joint Venture Advantages and Disadvantages

Joint Venture Advantages and Disadvantages

Joint Venture Advantages and Disadvantages

What is a Joint Venture?

Possibly your first question will be “What is a joint venture?” and then possibly “How is that different from a partnership?”. And yes, it is commonly referred to as a “JV”, but first question first.

A joint venture is an alliance between parties for mutual benefit. Still doesn’t really explain things, does it?

Where different companies that might not even be in the same industries see an opportunity to work together for mutual benefit without giving up any of their core business, that is a joint venture.

Joint Ventures are usually for a specific and limited project, goal or purpose and may also be limited by time. They allow each of the parties to leverage the resources, technology, finance or markets of other parties, for mutual benefit.

Property developments are often completed by joint ventures, where each party contributes different resources or expertise to complete the project. One party might have all the knowledge necessary to set up, manage and complete the project, another party might own the land and the third party might be a builder. By forming a joint venture, they all limit their risks to the areas where they have knowledge and experience and get to participate in a project that would otherwise be out of their league.

Telecommunications companies might form joint ventures to construct and use infrastructure that is costly to build and maintain and would otherwise be underutilised. They each gain access to a necessary resource, but at a reduced cost.

Its also common for joint ventures to form between foreign companies wanting to break into a new market where there is an allied provider who already has their customers in that territory. Consider a home and contents insurance company that teams up with a car insurance provider in a market where they don’t currently have a foothold, being able to increase the variety of insurance products offered to the car insurer’s customer base.   

Joint ventures can involve more than two parties and can involve different types of entities, such as a mix of individuals, companies and trusts. There is no specific formula. Some joint ventures are formed by contract and some are formed as companies where each joint venture party owns shares. An incorporated joint venture is more likely to become a saleable asset in the future than an unincorporated joint venture.

Famous Joint Ventures You Might Not Have Heard About

Some recent international joint ventures include the following:

Haven – This health care focused joint venture was formed in 2018 between Amazon, Berkshire Hathaway and JPMorgan Chase. Think about the benefits each party might be contributing to the venture. Amazon has amassed huge amounts of data on consumer spending and is increasing its data collection into our homes with Alexa and Amazon Prime. Berkshire Hathaway has been around for 180 years accumulating incredible knowledge and experience in operating successful businesses and understanding market changes. JPMorgan Chase is an investment bank. The stated goal of Havel is to simplify insurance benefits, improve healthcare services and reduce the cost of health care services and prescription drugs.  

Self-driving cars – Google’s Waymo self-driving division has joint ventured with Jaguar Land Rover and Chrysler rather than building cars themselves and the car manufacturer doesn’t have to start its self-drive tech from scratch. Volvo and Uber, Honda and General Motors’ Cruise Unit and most recently, Hyundai and Aptiv have teamed up, all for similar reasons. Predictions are that the motor vehicle industry will be dominated by tech companies in the not too distant future.

Cosmotec – is a joint venture between the Sumitomo Corporation Group and a Brazilian based cosmetics company, with a view to gaining access to one of the world’s largest cosmetics markets.

Joint Venture Examples

For small business we see a lot of joint ventures where parties collaborate to develop a product or service they couldn’t offer on their own. Some very common joint ventures include collaborations between:

  • software developer + industry expert
  • web or app developer + industry expert
  • digital marketers + tradies
  • digital marketers + professional services
  • digital marketers + any business that needs leads
  • salesperson + any business that needs to convert leads
  • professional onboarding or training + any business with a high demand for bringing on new staff
  • international company + local distributor
  • industry expert + allied industry expert
  • property owner + property developer
  • financier + any business needing capital

We’ve already talked about some joint venture examples, so perhaps we should also look at the characteristics of a joint venture, or examples of the kind of provisions you’d expect to see covered in a joint venture agreement.

Governance/ Setup

  • there is usually a joint venture agreement setting out each party’s rights and obligations, as well as what will happen to any venture assets at the end of the project
  • the proportionate interests of the parties are described in the joint venture agreement, sometimes 50/50 and sometimes a different proportion
  • the joint venture agreement should set out how decisions will be made and any deadlocks broken and also provide for prompt dispute resolution to avoid holding up the project

Control

  • each party has a proportionate interest in the revenue or profits of the joint venture, but that may be different from their level of authority in decision making – investment partners are sometimes silent partners to a joint venture, meaning they don’t have a say in how the project is conducted
  • each party to a joint venture continues to control and operate their own business independently to the project
  • transactions may be recorded separately by the parties involved and invoiced back to the venture, or accounts will be maintained so that each of the joint venture parties can separately account for their contributions and any distributions they receive

Termination

  • what happens to the assets of the venture, particularly intellectual property when the project ends?
  • are the parties restrained from competing with the joint venture for a period?

What is the Difference Between a Joint Venture and a Partnership

Partnerships are generally long-term whole of business ventures whereas joint ventures are often project specific side gigs. In a partnership you also agree to take full responsibility for the partnership liabilities, whether you created them or not, and even if you didn’t know they were created by one of the other partners.

We generally discourage people from calling a party a joint venture partner or calling their venture a joint venture partnership. In fact, we prefer joint venture and partnership not to be mentioned in relation to the same project.

Some comparisons between a joint venture vs partnership

Benefits of a Joint Venture

The benefits to a party in a joint venture will depend upon their goal in entering the arrangement in the first place. Some common benefits of joint ventures include:

  • business diversification
  • entry into new markets
  • new distribution channels
  • leverage expertise of another party
  • flexibility
  • limited scope
  • defined risks
  • defined rewards
  • potential to create saleable asset
  • reduced costs
  • economy of scale
  • strategic information sharing

Risks of a Joint Venture

One of the scariest parts of going into a joint venture for small business owners is that the other party won’t be as committed to the project as you are, and you end up doing everything yourself. We’ve seen it happen.

One of our digital marketing clients stopped joint venturing when they realised that they were doing everything for the venture and the other party was sitting back and doing nothing. Our client had the team and the methodology and the impatience to get things moving, but each joint venture became a project where they should have simply been paid for their digital marketing services and ended the relationship after delivery. While we were able to exit them from all agreements without too much fall out, it put their business back 12 months and impacted their revenue goals.

Your main risks are the same as any business venture, loss of time, loss of money, loss of trade secrets or other intellectual property, loss of staff and reputational risk. Weigh up the benefits against the risks, mitigate your risks and consider your options. 

How can Onyx Legal help you?

Joint ventures have a contractual foundation.
You can form a joint venture with a handshake, or you can put a little thought into your expectations and negotiate an agreement that clearly sets out each party’s rights and obligations, as well as exit opportunities. We also highly recommend incorporating sensible dispute resolution mechanisms that will support the joint venture moving forward. If you are already in a joint venture, we can review the contract and clarify any legal rights and obligations you don’t understand.
Legal Issues for Startups

Legal Issues for Startups

Legal Issues for Startups

The key is to identify the legal issues that put your startup business at risk of irreparable destruction or overwhelming cost, and deal with those issues first.

 

What impacts your startup business most will depend on where you are, and where you want to get to in the immediate future. Prioritise, don’t try and do everything at once.

Someone with an idea they want to develop with have different concerns to someone with a prototype looking for investors, which will be different issues to someone who has an MVP, investors and is looking to build their team.

At Onyx Legal we’ve designed a curriculum for start-ups covering –

MODULE 1 for Startups – Developing an idea

This is all about protecting and valuing your intellectual property (IP).

Too many startups have great ideas and start developing them without understanding how to secure their IP. If you can’t show serious investors that you own the IP, you won’t get investment. Simple as that.

Can you image Microsoft paying $26b for LinkedIn if LinkedIn didn’t own the IP behind their systems? Probably not.

Understanding this legal topic can also help you identify the best tools and strategies for developing your business using other people’s IP.

MODULE 2 for Startups – Business structures

Your business structure is either going to give potential lender’s and investors confidence, or have them running for the hills. What your accountant might recommend for tax minimisation might not be the best structure for attracting an investor. So consider where you want to take your startup and what makes sense for you.

Understanding this legal topic will help you identify structures for investment, growth and diversification. We aim to give you the confidence to really ask questions of your advisers about what is best for your startup and challenge their recommendations to ensure you don’t waste heaps of time or money.

Trust structures might work really well for property investment, but might not be ideal for a tech startup.

MODULE 3 for Startups – Building a team

When you are bootstrapping an enterprise you might not have the ability to pay yourself, let alone anyone else. This legal topic will help you identify options for bringing new skills in to the team without losing your shirt.

Learn about the legal opportunities and pitfalls for employment, employee incentive schemes, sharing equity, contracting, outsourcing and joint ventures.

MODULE 4 for Startups – Protecting your business

Australia is a great part of the world, but probably not always the easiest place in the world to do business. There are loads of rules and you need to have an understanding of what is relevant to your startup or risk having it shut down as soon as you go out and start interacting with customers. There are easy steps you can take to protect your business if you know what questions to ask and where to find the answers.

Risk management is not a scary topic and it isn’t nearly as hard as many risk management systems try to make it. We can help you to work out the key areas of your business that need attention and how to measure and manage that effectively.

Insurance is only one part of risk management and not always the saving grace that some people expect.

MODULE 5 for Startups – Sales and Marketing

What you promise to your customers is no joke, and Apple recently found that out when the ACCC went after them for misleading representations about consumer guarantees. The ACCC can impose fines over $1m on company’s that don’t comply with consumer laws. It’s important to know how your startup will deal with customer enquiries and complaints to avoid having to deal with regulators like the ACCC.

Each module can be delivered as a fast and full on 60 min information only session, webinar (heads up) or a 120 min interactive workshop. Feedback has been that people get more practical understanding from the workshops, but we understand there may be time constraints.

If there was one other thing you’d like to know more about, what would it be? 

Advanced workshops include:

  • A practical guide to copyright, protecting yours and managing cease and desist letters – 90 min
  • What, when, why and how to apply for a trade mark – 60 min
  • Understanding property leases – 60 min

How can Onyx Legal help you?

If you’re starting out on your own, have a team or are even part of an accelerator program and interested in getting some plain English legal training, please use our contact form to make a booking. We like to start by arranging a chat to work out what fits best for your organisation.
Best Business Structure for Online Business

Best Business Structure for Online Business

Best Business Structure for Online Business

Starting your online business

Starting your online business can be very exciting. One of the many things to think about is your business structure. It’s a great idea to think about these points to help you decide which structure best suits your needs.
  • why you are setting up your business
  • where the money is coming from
  • your long term goals for the business
  • the advantages and disadvantages of different business structures

Common business structures in Australia

It doesn’t matter where you are in the country now, the rules around your business structure will be very consistent across all the states and territories of Australia. The four most common business structures used by small businesses in Australia are: Sole trader: You operate as the sole person legally responsible for all aspects of the business. As a sole trader you can still employ other people to help you run your business. Company: A company is not you, it is a separate legal entity owned by its shareholders. Partnership: Partnerships are formed by agreement rather than registration and are an association of people or entities running a business together. It is different to registering as a company. Trust: A trust is usually formed by a Deed, but can be ‘bare’ or not documented. There are different laws that apply depending on where you are. The trust holds property or income for the benefit of others and is managed by a trustee. **IMPORTANT NOTE: A registered business name, or even an unregistered trading name, is not a business structure. It is just a name. That business name might be used by you as a sole trader, your company, a trust you have set up, or a partnership. It is not a legal entity and provides no protection or separation between the person or entity that registers the business name, and the liabilities of the business.

Different Considerations for Business Structures

Things to think about before choosing a business structure for your online business include:
  • Are you making any money yet?
  • Cost to set up and maintain.
  • Do you have personal assets you’d like to protect and keep separate from business liabilities?
  • Are you looking for income sharing opportunities?
  • Do you want to attract outside investors into your business?
  • Would you like to be able to sell all or part of the business in the future?
  • Tax and other duties.
  • Are there future potential tax savings that could affect your choice?
  • The reporting and compliance obligations of the business structure you choose.
Different people have different priorities, so there is no ‘one size fits all’ approach to choosing your business structure. For example, if you are not making any money, your risk is likely to be low and it will be easier to operate as a sole trader. Once you are making more money than you can afford to lose, you might consider setting up a trust or a company to operate your business.

FAQs

Is it better to get my accountant or my lawyer to help me set up my business structure?

In every profession there are people with different levels of skills and experience, so it really depends upon the qualifications and experience of your advisers. Some accountants are great in their area, and some lawyers are too. Know what your goals are and ask your adviser how they can best help you to achieve your goals. Don’t be afraid to ask if a proposed structure can be simpler! I’ve seen business structures that might have made sense at the time, but become burdensome later on and are impossible to unravel without huge cost.

Can I register a business name if I am a sole trader?

Yes! As a sole trader you can chose to operate under your own name with an ABN, like “Jeanette Jifkins, Solicitor” or you can chose to operate using a business name, like “Onyx Online Law”. You can register the business name against your sole trader ABN and then use that name in your small business. If you do use a business name, you need to register it.

Why should I register a business name for my online business?

It is an offence to operate a business under a trading name (other than your own name) if it is not registered. You can be fined up to around $5,400. You will need an ABN (Australian Business Number) before you can register a business name. Who ever has registered the ABN will be the person or entity behind the business name. Business name registration is now managed by ASIC. You will need to set up an ASIC Connect account and login before you will be able to find a link to register a business name.

Is my domain name the same as my business name?

Your domain name might be your business name, and it might not. Probably the easiest way to work this out is to think about what name will be on the invoices you business issues. If the name on your invoices is the same as the domain name, then it will also be your business name. You will still need to register your business name, or establish a company with that name, even it is the same as your domain name.

If I have registered a domain name, do I have to register a business name?

Yes. Domain name registration has nothing to do with business name registration. You register a domain name with a domain registrar. You register a business name with ASIC.

Do I have to register my business name if it is the same as my company name?

No. Once you register a company name, no one will be able to register the same business name and you don’t need to register the same name as a business name. They might still be able to register a similar name by adding something like (Australia) to the name.

How do I find out if I can register my business name?

If you are worried about similar business or company names that are already registered, try reserving a company name through ASIC (it costs about $44). When you reserve the name it will be checked and you will be told whether or not you can have it, or if you need to pick another name.

What does ATF mean?

ATF means ‘as trustee for’ and is used when you name the trustee of a trust. The trustee is the legal ‘face’ of the trust. You can have a person or a company as trustee. In legal contracts and on financial documents you will need to use the full legal name of the trust. For example – Small Business Pty Ltd aff Online Business Ventures Trust. You might also have registered a business name, in which case the full legal title of your online business might be – Small Business Pty Ltd aff Online Business Ventures Trust trading as Software Kings.

Do I have to write ‘trading as’ or ‘t/as’ on my website?

‘t/as’ means ‘trading as’. You do not have to put the full legal name of your business on your website. Provided you have a registered business name and an ABN, that is all you need to use. So from the example above, instead of writing Small Business Pty Ltd aff Online Business Ventures Trust trading as Software Kings ABN 00 123 456 789 you can simply put Software Kings ABN 00 123 456 789 on your website. It is a lot simpler to simply use your trading name and ABN than your full legal name and avoids the problem of messing it up. People who don’t understand their business structure will sometimes mix up what entity is ‘trading as’ and which one is a trustee.

Can I register more than one business name to my company?

Yes you can. If you want to operate a variety of sub-divisions or small business units within your company, you simply register a business name for each unit using your company ABN. You can then trade with the different trading names, but each trading name will have the same ABN.

Can a trustee company run a business?

When you establish a company for the purpose of being a corporate trustee, that should be the company’s sole purpose. If you also want to trade through a company, you should establish a separate company to do that. As a corporate trustee, a company is responsible for managing the business or assets of the trust for the benefit of the beneficiaries of that trust. The trustee does not own the trust property, and the trustee can be changed.

How can Onyx Legal help you?

if you would like one of our team to help you make sense of your current business structure, or set up a business structure to suit your needs.
Compare Crowdfunding in Australia

Compare Crowdfunding in Australia

Compare Crowdfunding in Australia

Crowd Funding concept with smartphone on white table

What is crowdfunding?

Crowdfunding is about enabling other people to support your cause or idea by donating money to you.  Some fundraisers offer perks or rewards in exchange for donations, some don’t.

Organisations that have deductible gift recipient (DGR) status can provide tax deductible receipts for donations of over $2, provided that no perk or reward is offered in exchange for that donation.

In Australia there are strict regulations around offering shares or interests in a company as part of a crowdfunding campaign. Only angel investment platforms with financial services licences are able to support this.

What is the risk?

As a donor you are warned against giving money to crowdfunding campaigns in case they are a scam. Statistically, most are not scams but genuine efforts by people or organisations to fund particular projects or ongoing activities.

Australians reported spend $20billion per year on gambling. With those statistics I am constantly surprised that crowdfunding gets such a bad rap. If we could divert even a fraction of gambling revenue into crowdfunding campaigns (same risk) the potential for growth in innovation is huge.

As a fundraiser, your greatest risk is not grabbing the attention of the public and failing to reach your funding goal. One way to mitigate this is to use crowdfunding platforms that permit flexible campaigns where you receive the funding regardless of whether you reach your target or not.

Chose a platform that is currently active; you don’t want to put time and effort into a great campaign only for nothing to happen with it. For example, Cleantechfundr doesn’t appear to have any activity since 2014.

What are the crowdfunding laws in Australia?

Crowdfunding has worked without government interference or regulation up until now, but in late 2015 the Australian Government had before it draft legislation that would regulate ‘crowd-sourced funding’ (because calling it ‘crowdfunding’ like everyone else would be too sensible).

Fundraising in a traditional sense is covered by the Corporations Act and the rules are enforced by the Australian Investments and Securities Commission (ASIC).  If your campaign is seen to be promoting a financial product (shares, insurance, mutual fund) then you will have compliance obligations and crowdfunding is probably not your best bet.

Where you are collecting a donation and offering nothing more than a nominal reward in return, you are unlikely to have to comply with Corporation Act.

The draft legislation (Corporations Amendment (Crowd-sourced Funding) Bill 2015) proposed that ASIC would have regulatory oversight of crowding in Australia where the fundraising results in the people gaining an interest (shares) in a public company. There was nothing in that draft legislation that affected crowdfunding by proprietary companies, associations or individuals. That Bill has now been shelved (2016).

Other laws that affect campaigns are consumer protection laws. When you promote what you plan to do with the money, you have to be accurate in what your telling people. If what you say is later found to be misleading and deceptive you may be liable to pay fines as well as refund money.

You do have to own or have the right to use any content you include in your campaign to avoid infringing intellectual property laws.

Some states of Australia also require organisations (unless exempt) to obtain a fundraising licence if collecting money for a charitable purpose. These states are:

•    Western Australia (any amount)
•    Victoria (>$10,000 per financial year)
•    Tasmania (for individuals & organisations not incorporated in Tasmania)
•    South Australia (any amount)
•    Queensland (any amount)
•    New South Wales (any amount)
•    Australian Capital Territory (>$15,000 per year)

‘Charitable purpose’ doesn’t appear to cover ‘developing a business or business idea’ but it is worth checking with the appropriate state based regulator to work out whether or not you are covered. A useful resource for this is Fundingcentre.com.au for fundraising legislation and regulations for not-for-profits.

How do crowdfunding platforms work?

Crowdfunding platforms usually collect the money before passing it on to the fundraiser, and will only pass it on under certain conditions. Where a fundraiser has listed an all-or-nothing campaign, the people pledging money are often not charged until the campaign has reached the funding goal. With a flexible campaign, funds raised are handed over whether or not the goal is reached.

Crowdfunding platforms don’t take responsibility for the funds raised. If a fundraiser has offered perks or rewards in exchange for money raised and they don’t deliver, donors have to pursue the fundraiser rather than the crowdfunding platform.

Why crowdfunding doesn’t always work in Australia

You can’t enforce a pledge under Australian law. We have a system where there has to be a mutual exchange before a contract can be enforced. The exchange doesn’t have to be for equal value, it just has to occur.

So, if you are crowdfunding in Australia and you want to be able to collect all of the donations pledged to your campaign, you will usually need to offer and provide something in exchange. This is why a lot of campaigns offer promotional material in exchange for donations.

Realistically, the cost of enforcing small donations is likely to be prohibitive, so it is still an exercise in trust in hoping that people will meet the promises they have made. For this reason, platforms that do not have a minimum cap for collection of funds offer a lower risk to crowdfund fundraisers. If you are able to collect the funds as soon as the donor has the impulse to buy, you are less likely to lose collections because people change their mind at a later date.

What can’t I crowdfund?

Each crowdfunding platform sets out different categories of product or service they won’t allow you to start a campaign for. These usually cover things like illegal activities, adult material, tobacco or alcohol products, financial products, optional medical procedures, gambling and so on.

Different types of platforms

Not all crowdfunding platforms support every idea. Some platforms are aimed at creative projects, some social enterprise or charitable projects and a few are designed to connect small investors with start-ups in exchange for an interest in the company. Below is a PDF showing a selection of different types of crowdfunding platforms available in Australia.

There are a few other platforms promoted as crowdfunding or small investment opportunities (like BrickX and Thinkable) that don’t fit the usual crowdfunding framework are not included.

Download your Crowdfunding Australia comparison table here – crowdfundingpdf

How can Onyx Legal help you?