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Business Expansion As A Sole Trader: Legal Factors To Consider

by | Jul 27, 2022 | Corporate & Business

Starting your own business is one of the most satisfying things that you can do, and seeing it flourish and grow is an incredibly fulfilling experience. Some people kick off their business as a sole trader because they don’t know how successful it will be.  But if you find yourself looking to hire employees or expanding the scope of your operations, then it may be a sign that your business is starting to outgrow its sole trader structure and you should look at more efficient structures for your circumstances.

You should be aware of the practical considerations to take into account as you expand your business away from sole proprietorship, especially from the legal point of view. An experienced business lawyer in Melbourne can give you specialised advice and guidance on your growth options and the legal factors you need to consider, which we will cover briefly below.

Understanding the legal status of business structures

You should take the opportunity to consider the legal status of your business and trading entity. The legal structure of your business plays a role in determining the implications of a number of matters such as taxation, regulatory obligations, asset protection, the ability to raise funds, management of the business, and much more. It also affects the ramifications such as the liabilities you face if challenged with a lawsuit.

As a sole trader, you have full autonomy as the sole owner and manager of your business. A sole trader is legally responsible for all areas of the business but faces potentially unlimited liability. This means that your personal assets as well as those of the business are at risk. Moving away from sole proprietorship to company status for example can give you more legal protection, so in some cases this may be a more favourable option.

You need to be aware of the differences in the legal structure you move on to in order to feel more confident with your next stage of trading and make the right decisions for your business.

Understanding the different types of business structure

The more common types of business structure in Australia today are:

  • Sole trader
  • Partnerships
  • Limited liability companies
  • Trusts

Some of these can work together – for example a company can be a trustee of a trust, and in turn that trust could be in partnership with another trust or company.

Taking on a partner in your business means you both agree to bear joint responsibility in terms of profit, loss, and other liabilities. If you decide to go into partnership, then you need to set up a business partnership agreement with the person or persons identified as partners. This is a legally binding document that your business partnership lawyer can prepare and go through with you.

Using a company structure can offer you more protection as it limits what liabilities can be faced by the owners of the business (the shareholders). The company is a separate legal entity so it can protect personal assets to a certain extent, which makes it a common choice for sole traders looking to expand their business. At this stage, it is very important to set out clearly who the business owners and directors of the company will be with the help of an experienced business lawyer. The company structure will remain even if the owners and directors are not operationally involved.

Another common business structure is where the business is conducted and assets held by a trustee who holds the business assets on behalf of the beneficiaries. Your business lawyer can talk you through this in more detail to help with your decision.

Registering your change in business

Whatever decision you make, your new business structure has to legally be registered via the Australian Business Registration service. This is where you can apply for key business registrations including an Australian Business Number or ABN. Ensure that the correct information is registered and that you fully understand the new taxation requirements placed on your expanded company. You will also need to choose and legally register the new company name.

If you own any licences or trademarks as well as physical assets including buildings or equipment, you may wish for these to be transferred to your new company or another separate entity to keep the assets separate from the at-risk trading entity. You can speak with your business lawyer in Melbourne to ensure that all the relevant assets have been legally transferred under an asset transfer agreement.

There are also different costs and legal reporting requirements for a company, partnership, or trust. There will be updated filing arrangements for taxation purposes as well as obligations to ensure that the relevant business information is publicly available.

To ensure you meet all the legal requirements for expanding your sole trader business, get in touch with us at Nevett Ford. As one of the longest continually operating law firms in Melbourne, our business partnership lawyers have the skills and experience to guide you through the necessary legal considerations to grow and expand your business. Speak to a friendly member of our team today!