You want to get started quickly, without spending too much money until you see if your idea is credible and takes off. So you decide to set up as a business rather than a company. What do you need to know before you do this?
What is the difference between a business and a company?
You may think that because you have registered your business name with ASIC then you are done, protected and set up. What you may not realise is that there is a large difference both financially and legally, in the way a business and a company are structured.
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The good news
Set up costs are less: A business costs less to set up, so many start-ups choose this option often with intention of seeing if their idea will make money before spending money on setting up a company.
National registration: The really good news is that the business name registration system is now a national system. Previously you were required to register in each of the states where you planned to do business, which was costly and time consuming. Now you only need to register once to be registered in all states and territories of Australia.
You can register your business name online.
The less-good news
No exclusive rights to the name: When you register a business name with ASIC, it is simply that: ‘a name or title under which a person or other legal entity trades’. It just means that it may be registered but you do not get ‘exclusive’ rights to use that name. For example, someone else could come along, use the name and, if they have trademarked the name before you have, they may have the right to use the name and require you to change it if you are conducting a similar business.
Personal assets at risk: An incorporated company may cost more but it is structured so that, legally, it can be seen to be separate from the owner to ensure the owner’s personal assets are protected. This is important if things go wrong.
However, this is not the case with a business. With a business setup, your personal assets are fair game for creditors. If you are set up under a business structure and if there are issues with debt, legal claims or other financial problems, creditors would be able to access your personal assets and belongings.
If you have set up as a company, the debt collection is restricted to the assets of the company. This means your house is safe (unless you have posted it as a guarantee for a company loan). You can still be liable and accountable as a director for such things as breach of the law, but generally speaking, your personal assets are protected.
So how can you protect your business better?
1. Protect your name: it’s often your most valuable asset, so it’s important to protect it.
You may believe that because you have registered your company name or business name with ASIC, you are protected against others using it for similar businesses. This is not the case. To get proper protection, you need to register the name as a trademark with IP Australia.
2. Protect your business with strong terms and conditions.
You can get protection from good legals on your website. Terms and Conditions with a good limitation of liability clause will at least provide some protection for your business and will limit your liability. This may be your best source of protection for your business, so don’t take the chance by copying them or writing them yourself. There are lots of online templates that for very little cost, will provide good protection.