First Steps in Starting a Business
Establishing a business can be confusing for anyone doing it for the first time. There are new terms to understand and processes you need to complete for reasons you are not sure about.
This article will help you understand the process and to complete your business registration online.
This article is intended for businesses and not for Not-For-Profits Organisations, incorporated bodies, Trusts or Partnerships. (See notes below on Trusts and Partnerships)
Business Names & Types
For many first time business owners, the business name is the catalyst of starting a new business. However, disappointment can quickly follow when they discover, the name is already taken by someone else. So for this first step, you may need to stay flexible on your business name.
The Business Name
A business name is the name under which your business will trade. The name people will remember your goods or services by.
Business names are registered with Australian Securities & Investments Commission (ASIC). Once a business name is registered, your business can operate in any state or territory. If you're trading under your own name as a Sole Trader or the Company name there's no requirement to register a separate business name.
Types of Businesses
The type of business you select is an important decision. As most startups are Sole Traders or Corporate entities (Company Eg. Pty Ltd) we will focus on these main business types. Partnerships and Trusts business types are outlined near the end of this article.
The following table may assist you in which business type to consider.
- $34 for one year
- $78 for three years
A business linked to you as a person, so you are in effect 100% responsible for the business debits and any legal claims.
Suitable for people with few personal or joint assets, business remains small and providing basic services or goods with a low level of risk. Eg. party plan products, retail clothing etc.
- Low cost to establish due to few legal and tax formalities.
- Easy start up and to close down.
- Personally liable while the business is trading and after closure.
- Basic recording keeping required.
- Taxed at personal income rates. Unless you intend to trade under your own name, you will need to register a Business Name.
Corporate Entity (Company)
Setup from $795 (Via the AHBC)
- $34 for one year
- $78 for three years
ASIC Annual Report ≈$236/year
Most small Companies are Proprietary Limited's ('Pty Ltd') having at least one shareholder. Shareholders limit their risk based on the shareholding value. E.g 5 shares at $1 each, total of personal risk is $5.
Ideal for people with personal or joint assets that they want to protect and / or the company provides advice or trades in high risk products or services. Eg. Engineering Services, Food Production etc.
- Higher startup cost.
- More difficult to wind up (Deregister) if assets remain and during a legal dispute. Otherwise, ASIC form 6010 "Application for voluntary deregistration of a company" is low cost and easy to do.
- Liability only exist while the Company is registered.
- Basic record keeping.
- Annual ASIC return and payment.
- Hold Annual General Meeting each year.
- Directors statements of solvency.
- Taxed at 30 cent in the dollar on profit.
- Can issue pre-taxed dividends (Franked)Many companies have the same trading name as the business but without the Pty Ltd so the company will need to register and maintain a Business Name.
By simply having a registered Business Name or Company Name does not provide you with exclusive right to use the name. Only a Trade Mark offers this level of protection in a particular Class of goods or services. Click here for further details. Eg. You have a Business Name registered and you are trading and becoming know in your market. Then suddenly you receive a "Cease & Desist" notice as you are using another parties "Intellectual Property", a Trade Mark.
Like a Trade Mark, a domain name can add value to your business brand and in today's world of the internet marketing and shopping, you should consider securing domain names that represent your trading, product and service names. For example, the trading name for "Biscuits To Crumbs" could have one or more of the following domain names registered:
If most of your business will be within Australia, ensure you secure the Top Level Domain ".au". This helps with displaying your business listing in search engines like Google and to local buyers.
If you are looking at internationals sales, also secure the Top Level Domains like ".com" without the ".au".
To search and register your domains, click here.
You have done your research, picked a Business Name and Domain Name and decided on a Business Type.
The next step is to get your personal details and credit card ready.
You will need:-
- Full name, address, tax file number and date of birth for each person involved in your business.
- Corporations, identify who will perform the role of Directors, Secretary, Public Officer.
- Corporations, list of Members a.k.a. Shareholders (Name, Address, Date of birth, Tax File Number), number of shares, issue price of shares, type of shares.
- Intended business location if known.
- Registered address for any documents that will be served. Some business owners use their accountant's or lawyer's address however it can be your address. Ensure you obtain permission.
- Further details may be required if you are not an Australian Citizen.
- Email and phone numbers to be used as contact.
- Your Credit Card to process payments.
Partnerships and Trusts
Partnerships and Trusts are in effect not business structures as neither directly pay tax. These structure in the main are used to distribute profits between partners or beneficiaries
Partnerships are an association of people (Sole Traders) or Companies running a business together, but not as a Company. In a partnership, profits are allocated back to Sole Traders and/ or Companies. The greatest disadvantage with a partnership is that any decision by a partner is "Jointly and Severally" bound to all the other partners. Meaning, one partners issues either in business or life could have an impact on you and the other partners.
Trusts are entities that hold property or income for the benefit of others. Taxes are paid by the Beneficiaries receiving the funds. A Self Managed Super Fund (SMSF) have some additional legal and taxation considerations.