Getting it right at the start
Thinking of starting your own business? Marcel Vaarzon-Morel outlines the first steps for any new venture.
Often businesses start with a great deal of enthusiasm, along with great ideas and ride a tidal wave of success with little time spent getting the foundations sorted. Whether you are starting up a new business or have an existing business, ensuring a sound structure for the business is essential. The following brief guide will provide a simplified checklist regardless of the age of the business.
1. Have a business plan
Or plan your business, in essence the same as a seafarer’s chart showing where you want to go. When writing a plan for your business, I believe it’s best to start at the end in respect to what the goals of the business are. There are many online formats that can assist and, importantly, this document must live and breathe in that it should be updated and be seen as tool to help, not as a hindrance.
2. Consider your business name and logos
This early consideration and registration is essential as these will become an asset if and when you wish to sell. But importantly, the registration may save you dollars in that it secures your right to the property excluding others from using or stealing your property. In these respects while the application may seem straightforward, legal advice should be sought to get it right.
3. Secure your domains
In conjunction to your Intellectual Property (IP) considerations, you should secure your internet addresses and names i.e. .com, .com.au, .net, .net.au, etc. At this stage you should consult with an internet professional to get the best internet ranking and search engine optimisation (SEO). Note that registering a business name does not secure your IP nor online name registration, so all these registrations must be done independently.
It surprises me constantly how many existing businesses have not undertaken these most basic registration requirements and while in many cases it can be rectified, it’s often not without some additional costs that could have been avoided. The worst case I have witnessed was in a complicated matter where a business owner lost her business and rights to her IP. The business formed part of a family law settlement; however, due to a lease not being renewed by the lessor (who ran a complementary business downstairs) the upstairs business lost its premises and consequently the IP that was shared by both parties. Interestingly, the two businesses started together and saw benefit in sharing the same IP and while everyone was friends this arrangement worked well. Unfortunately, by the time the evicted business owner came to us she was not in a position to roll the clock back.
4. Sole trader, partnership or company
While overlapping to some degree with your business name, IP and internet considerations, this is often difficult to decide. Briefly:
Sole Trader: Cheap to set up and close. As an individual you have control of the business but you are also personally liable, so it may be best to have your home etc in your partner’s name. As a sole trader, the business may struggle to get finance and may not be recognised overseas when dealing with other corporates.
Partnership: This needs a proper partnership agreement. Both parties are jointly and severally liable for each other, and you are both personally liable. Funding may be easier to get and expenses are shared but the business may still not be recognised overseas when dealing with other corporates.
In both the above situations, tax considerations will vary greatly compared to a company structure so an accountant should be instructed to assist.
Company: This structure costs more to set up and requires greater input from professionals. Unlike simple structures that die with the owner, this is known as perpetual succession (until wound up or dissolved) and this continuance is not affected by the death or withdrawal of shareholders. Therefore, the owners of the business/company can more easily divest themselves of their interest. A company structure allows considerable flexibility in the organisation, management and financing of the corporation. Share capital can be raised via shareholders whereas partnerships are generally restricted. Shareholders can have varying entitlements in terms of dividends and control, and if the corporation grows in size it may be listed on the stock exchange. Subject to compliance with statutory requirements, funds may be raised from the public. Shareholders generally have limited liability and are not liable for the debts of the corporation.
Additionally, consideration should be given to what transferring a simple business to a company structure will entail when looking into the future. Presently, I am preparing wills for a client who has a successful partnership with his father. The reality is that the ramifications for the children of my client would be catastrophic in the event both parents were killed in an accident. Therefore, like the business plan, succession planning is almost a priority or at least to be considered once the business shows legs and children start to appear on the scene.
5. Succession planning
In essence this can be as simple as a will but should also be considered in the company constitution, shareholders agreement and, in the case of the simple business structures, a written document setting out the what, when and how the business will be finalised. If the business is to be used as some form of security for the future of family members then the use of trusts and company structures is the most secure strategy.
In all three business structures there are pros and cons that need to be considered before a final decision is made. And talking to a business-savvy commercial solicitor who is familiar with the marine industry, a good accountant and financial advisor, your bank manager, your family and any other relevant parties before heading into the wild blue yonder of your marine business is where your journey should start.
These discussions may alter your path considerably with respect to the future and while the future is difficult to foretell, the planned course that is set now will more than likely result with you ending up at the required port of destination.
About the author
Marcel Vaarzon-Morel is the principal at Vaarzon-Morel Solicitors specialising in all marine business, insurance, yacht and shipping contracts, and litigation. www.vaarzonmorelsolicitors.com.au.
This article was first published in the February-March 2018 issue of Marine Business magazine.