Starting a business with another person can have enormous benefits – shared workload as well as double the experience, skills and networks.
But plenty of business partnerships have gone wrong – and in most cases it’s because they had little structure with no regard given to protecting intellectual property (IP).
Belinda Breakspear, Partner at McCullough Robertson Lawyers and specialist intellectual property lawyer, says protecting your IP not only makes it easier to operate as a business partnership, it also looks good for investors.
“IP protection and ownership should be kept top of mind,” she says.
“The value of a company often sits with the IP. If the IP is not protected through the required registrations, or your IP house is not in order (i.e. you do not own the IP), investors/businesses will often be reluctant to buy in, collaborate or partner with you.”
Here are four things you should do in order to lock down your IP.
1. Get it right from the start
Breakspear says one of the first considerations when setting up a business should be around what IP each person brings to the business, as well as who will own any new IP created as part of a collaboration.
“Careful consideration should be made when dealing in collaborations where intellectual property is likely to be jointly developed,” she says. “It is not enough to simply say that the IP will be held jointly. Joint IP ownership can be tricky, so often it is best for one party to own the IP and the other to have a broad licence to use it.”
She says some of the common mistakes businesses make is failing to safeguard their brand name by not acquiring a trademark (such as Hungry Jacks not being allowed to use the name Burger King in Australia) and disclosing your IP before protecting it (think Kambrook not filing a patent for the multi-adaptor power board).
Nick La, serial entrepreneur and co-founder of the newly-launched recruitment app Weploy, says he and his business partners sought legal advice from the outset.
“Unique IP is core to Weploy’s value proposition,” he said. “With any new concept comes the risk of others trying to replicate it, so it was important that we protected our business, right down to its code.”
“Owning our IP is a priority of huge importance, which is why we laid out expectations from the outset, consulted our lawyers from day one and did our research to ensure we worked with Australia’s leading IP law firm.”
2. Prepare for the worst
La says he and his business partners envisaged a worst-case scenario, where one of them left the business and issues around IP arose, and worked out a plan.
“We all understood that it was something we had to lock in before we started our journey together,” he says. “This can be a difficult conversation to have, particularly because co-founders are usually more than just business partners and this is definitely the case with our founding team.
“We consulted our lawyers and created a business partnership under a company structure where each founder is protected, particularly if unforeseen circumstances occur or the business undergoes any major changes.”
3. Consider third-party players
Breakspear says not understanding the law as it relates to third party contractors is a minefield, and all business owners need to check each contract to ensure they own the work.
“Don’t assume that simply because you pay for something you will own the IP in it,” she said.
“Generally any intellectual property created or developed by a third party outside of your organisation, such as third party contractors, will be owned by the party creating it even though you have paid for it.”
She said this is particularly important if you are collaborating with someone outside your organisation who is creating IP.
“Having the right contracts in place at the start is much better than trying to fix up these things down the track.”
4. Keep communicating
La says business owners need to keep an open line of communication.
“Having had experience in other businesses, I’ve now become very diligent in understanding my partners and the importance of being transparent,” he says. “Any previous issues I’ve experienced have been due to a lack of transparency and failing to set clear expectations so I would probably focus more on ensuring that was better addressed.”
He also recommends keeping discussions on a business level, even though you may be personal friends or even related.
“It’s imperative that you approach business matters formally, ensure everyone is comfortable and communication is kept open,” he says. “Ensure everything is documented and agreements are formalised. Verbal agreements don’t provide enough protection in the event that a working relationship breaks down.”
This article is designed to provide a summary and general overview of the subject matter covered for your information only. It is not intended to be nor should it be relied on as a substitute for professional legal and financial advice. You should seek your own independent legal and financial advice before acting or relying on any of the content contained in this article. ANZ makes no warranties or representations regarding the accuracy, currency or completeness of the content contained in this article. No liability is accepted by any member of the ANZ Group of companies for any error or omission, or any loss caused to any person relying on the information contained in this article, except where such liability cannot be excluded.
Some businesses go too hard too soon, stretching their resources to hit an overseas market without first forming a strategy and researching the market. Conversely, some business owners are cautious of expansion. So, what’s the secret to success?
1. Determine if your business is ready
If you’re looking to overseas markets, how solid are your domestic sales? By demonstrating your success, you’re not only making sure you have the working capital and cash flow to invest, but you will also make overseas buyers feel secure in you as a supplier.
* Understand how the market operates: Conduct market research to learn about market size and demographics, import duties, regulations, distribution channels, opportunities and competition * Consider your export budget, determined by the countries and markets you’re targeting and the products or services being exported * Take into account additional resources you’ll require such as extra employees * Calculate the added cost of any product or service modifications
Ben Thompson, CEO of employment management software platform Employment Hero, says business owners need to make sure they have a solid base from which to expand.
“One of the key things is not to overstretch and leave one territory before you feel as though you have really won there,” he said. “If you leave the local battle to start a new one you may end up losing on both fronts.”
2. Validate your product or service
Before investing, consider trialling your product or service in the market and gauge the demand by looking at how frequently you’re getting steady international enquiries and sales leads.
Thompson says it’s imperative businesses test the waters. He is currently looking to launch his platform in the UK market, but has learnt many lessons from expanding another business overseas, the Power to Motivate employee reward system.
“You don’t want to spend millions of dollars to discover for whatever reason the product doesn’t work in a new territory, so definitely prove the market before you make the leap,” he says.
“Make sure you can run very low-cost business case assessments within those target territories.”
James Wakefield, co-founder of luxury tailored menswear company InStitchu, exports all over the world but now has physical presence in Auckland and New York City. He says using your company’s existing capability is a great place to start.
“Businesses must make a realistic assessment of the demand for their product and the internet has made this process so much easier,” he said. “If you have an online channel, use this to reach out into the market and see what the immediate uptake is like. Analytics means that we don’t have to guess anymore, we can make an informed choice.”
3. Research and adjust to that overseas market
Every market is different and you’ll need to examine the positioning of your product or service.
Wakefield says the decision to open offices in the US and New Zealand was a relatively easy one, and they are successfully selling globally because their product is quite universal.
“We had a core group of loyal customers in New Zealand and the US who were clamouring for an affordable, high quality custom menswear service – we just answered,” he said. “As far as cultures go, the US and NZ are both pretty similar to Australia and this was a calculated move. We could move into these markets with very little change to our messaging and strategy.”
Remember that each market is unique, so researching trends and behaviour of each market is essential.
4. Avoid the pitfalls
Doing business overseas always involves risk: exchange rate fluctuations, cultural differences, loss or damage, non-payment of receivables, non-delivery of goods, or custom regulations to name a few.
You can mitigate risk by seeking expert advice, and choosing the right partners and professional advisers and by completing a comprehensive risk assessment.
Wakefield says InStitchu stays ahead of the game with exchange rate fluctuations through their pricing policy.
“We manage exchange rate changes through dynamic pricing of our products,” he said. “The prices on our product will shift, in very minimal amounts, to reflect the current exchange rates around the world.”
Thompson knows you need to be product-ready for a new market. He says taking Employment Hero to the UK requires an intensive amount of development to ensure all employment regulations and tax office integrations are adapted into the system, so he’ll wait until they get it right to avoid peaking too soon.
“There are reams of information we need to sift through and a huge amount of development before we even think about moving someone to the UK,” he said.
“Because of the complexities of international expansion that I have been through in my career as an entrepreneur, I have done it before and I want to make sure we do it properly.”
Wakefield says adjusting your management structure and communication systems is imperative when you have a business in another time zone – and being prepared for that, rather than reacting to issues that inevitably arise, is crucial.
This article is designed to provide a summary and general overview of the subject matter covered for your information only. It is not intended to be nor should it be relied on as a substitute for professional legal and financial advice. You should seek your own independent legal and financial advice before acting or relying on any of the content contained in this article. ANZ makes no warranties or representations regarding the accuracy, currency or completeness of the content contained in this article. No liability is accepted by any member of the ANZ Group of companies for any error or omission, or any loss caused to any person relying on the information contained in this article, except where such liability cannot be excluded.
Partnerships, sole trader or company – what’s the difference? How tied are you to the structure you choose? The early stages of any new business can feel like a frenzy, but it’s worth taking a breath, and considering how your setup will work with your long-term strategy.
To help inform your decision, it’s important to take the time to understand the different ways you can set up your business, factoring in personal circumstances, the size of your business and your plans for growth.
Sole trader
A sole trader structure is when a person is trading as the individual legally responsible for all activities of the business, explains Matthew Payne, Partner at TressCox Lawyers.
“There’s no division between their personal assets and business assets, and they can trade using their own name or they can register a business name and trade under that business name,” he says.
Keep in mind:
As a sole trader you have full control over the assets and the business
This structure is a low-cost, easy setup
The sole trader is taxed as an individual. You have to report your business income in your individual tax return
Losses from your activities can be used to offset other income
You’ll be personally liable for all business debts
Your personal assets are at risk if things go wrong and can be seized to recover a debt.
Partnership
“A partnership is a relationship between people or entities running the business with a common view to generating a profit. Each partner makes some sort of contribution which might be their skill, labour or some property,” says Payne.
Partnerships are common for professional services firms (i.e. lawyers, accountants) and like sole traders, it can be fairly easy and inexpensive to set up, he says.
“For any structure, other than a sole trader, where you’re running a business with other people, we always recommend some form of document be drafted to clarify the relationship and what the rights and obligations of each party are.”
Keep in mind:
Partners have shared control over the management of their business, subject to any agreement they have among themselves
While a partnership is easy to establish, it’s important to create a signed partnership agreement to protect yourself
The partnership doesn’t pay income tax on the income. You and each of your partners pay tax on the share of the net partnership income you each receive. Individually each partner will have to report their own partnership income in their own tax return
You’re liable for the debts and obligations of the partnership. Therefore, it’s important that you are aware of what your other partners are doing. If they’re presenting themselves as authorised to act on behalf of the partnership then all of the partners become liable for whatever they agree to do.
Company
“A company is a separate legal entity from the people that are involved with it. A company has the same rights as a natural person, which means a company can incur debts, and can sue and be sued,” explains Payne.
A company has members, or shareholders, who are the owners of the company, and the directors who form the board, who run the company on behalf of the members, says Payne.
The main difference with a company is that the liability of the members is limited to what they invest: “You don’t have to put in additional funds if the company doesn’t have sufficient assets to pay its debts.”
Keep in mind:
Business operations are controlled by directors and owned by the shareholders
Companies are taxed as separate entities and do their own tax return
Companies have more complex business structure to start and run
Shareholders can only take money out of the company by way of dividend, or there may be loans between companies and shareholders
Money earned by a company is housed within the company, and it has a separate bank account. If the company wishes to retain funds, then it just does so within the company’s bank account.
“Ensure you get advice from a tax adviser, a lawyer and an accountant before transitioning your business so you’re aware of the costs up front,” says Payne.
By Thea Christie
This material does not take into account your personal and financial needs and/or circumstances, and you should seek appropriate advice (which may include property, legal, financial and/or taxation advice) before making any decisions or acting on any of the information contained in this material. To the extent permitted by law, all members of the ANZ group of companies disclaim liability or responsibility to any person for any direct or indirect loss or damage that may result from relying on the information contained or this site, or any act, omission or error, by any person in relation to the material contained on this site.ANZ Business Ready® is a registered trademark of ANZ.
Don’t get penalised for something silly like not accurately recording your income. As a startup, you are responsible for ensuring you meet all your business GST obligations.*
Here are the top four mistakes startups make, and how to avoid them, according to Tony Greco, General Manager, Technical Policy, Institute of Public Accountants.
1. Not realising you’re required to lodge a BAS statement
Ask yourself whether you’re going to be profitable straight away, making more than $75,000 per annum in your first year. If you answer yes, then you are required to register for GST and lodge your BAS statement.
“Tax compliance is part of doing business and should be just as high on your priority list as running your business and becoming profitable,” says Greco.
You may be too busy running the day-to-day, so if you don’t want to do it yourself, make the decision to partner up with someone who can pay attention to that aspect of the business, rather than not think about it at all, explains Greco.
However, make sure you need to lodge a BAS statement before spending too much time on it.
“Some startups may take quite a long time to get funding and they’re not doing much invoicing. If you’re not going to reach [$75,000] in the year ahead, you don’t need to register for GST,” says Greco.
2. Missing the deadline
If you’re registered for GST you need to lodge a BAS for each agreed reporting period, either monthly or quarterly. The due dates for monthly reporting are typically the 21st of the following month. Quarterly lodgement dates are on the 28th of February, April, July and October.
A common mistake is claiming GST on things where there was no GST in the first place, says Greco.
Don’t assume everything has GST – bank charges, paying wages or sometimes registration on motor vehicles do not have GST, he says.
4. Inaccurate reporting due to human error
If your accounting systems haven’t been set up properly, coding errors can creep in where inappropriate expenses are going into the wrong accounts.
“It’s recommended you have an accountant or bookkeeper if you’re not comfortable with coding, understanding how GST works or deducting tax from pay packets. Leave it to someone who can do that administration and compliance for you.”
If you want to prepare an error-free BAS:
Understand your obligations and deadlines
Get professional help or look at software that someone can oversee
Have good record-keeping practices to get the compliance bedded down simply so you can focus on running your business.
Written by Thea Christie
*This material does not take into account your personal and financial needs and/or circumstances, and you should seek appropriate advice (which may include property, legal, financial and/or taxation advice) before making any decisions or acting on any of the information contained in this material. To the extent permitted by law, all members of the ANZ group of companies disclaim liability or responsibility to any person for any direct or indirect loss or damage that may result from relying on the information contained or this site, or any act, omission or error, by any person in relation to the material contained on this site.
ANZ Business Ready® is a registered trademark of ANZ.
Australia's company tax rate is unlikely to change in the upcoming federal budget, says Treasurer Jim Chalmers, suggesting a combination of targeted tax breaks and incentives will anchor the economic blueprint.
