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3 legal essentials for small business

How to set up three key legal aspects of your small business.
Setting up a new small business can be an exciting time, but also very demanding and stressful. ere are three important legal tips for any business owner looking to start up their business.

This article is written by LegalVision.

From attracting new customers to onboarding new employees, there is a range of business planning matters that must be done for a new business to operate and thrive. According to the Australian Bureau of Statistics, more than 60% of small businesses stop operating within the first three years. 

1. What is your business structure?

From sole traders to partnerships to franchising, each business structure has distinctive advantages and disadvantages. It is important that you understand the differences between the business structures as it will not only impact your taxation obligations, but also any plans to expand your business as it grows.

As the simplest structure, a sole trader only requires registration of the business name and allows you to enter contracts in your name. You have personal ownership and control of business assets and business decisions. However, you have unlimited personal liability. Unlimited personal liability means that your personal assets would secure loans, and your assets are at risk should the business fail to meet its debt obligations.

Another business structure is a partnership. Contracts are in the names of the partners and profits and losses of the partnership are divided by the proportionate share of capital contributions of each partner and then aggregated for each partner with income from any other sources. There are limitations on payments of salary to family members. There is a personal assumption of liability for the debts/liabilities of the business, jointly and severally by the individual partners.

You can also choose to operate your business through a discretionary family trust. With a trust, business is conducted, and contracts are entered into in the name of the trustee, often a corporate entity. You could be a director of this corporate entity as is standard for asset protection. Income can be distributed to all or some of the beneficiaries (who can be family members) to take advantage of tax implications.

2. Do you have employment agreements?

As your business grows, you will likely bring on more employees to assist you with its operation. Every employee must sign an employment agreement, drafted specifically for each employee. This important legal document will set out entitlements to leave and superannuation, and also clauses to protect your business such as your intellectual property and confidential information.

There are also clear distinctions between employees and contractors, with varying entitlements, tax obligations, and employer protections. You should understand the difference between an employee and a contractor as different legal documents will apply. In addition to employment agreements, you should also ensure you have a staff handbook.

3. Have you registered a trademark?

Many business owners believe that registering a business name or domain name will protect the name from being used by someone else. However, this is not the case. Your business’ name and logo can still be used by others unless it is registered as a trademark with IP Australia. IP Australia is an Australian Government agency that is responsible for administering and registering IP rights.

A trademark is used to identify and distinguish your goods or services. It can be challenged by others if they believe you are not the rightful owner. Without formally registering your trademark, your business is vulnerable from stopping others from using the same name and logo. Your business brand could become your business’ most valuable asset so ensure it is protected from day one.

Questions about setting up a small business? Get in touch with LegalVision – their business lawyers are experienced in all stages of the business lifecycle.


The information in this post is provided for general information only and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from financial, legal and taxation advisors. Although every effort has been made to verify the accuracy of the information as at the date of publication, Prospa, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy, or omission from the information for any reason, including due to the passage of time, or any loss or damage suffered by any person directly or indirectly through relying on this information.

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