The National Business Names Register

Posted by Byron Cannon on May 09, 2012

ASICThe new National Business Names Register will commence on 28 May 2012 under the administration of the Australian Securities and Investment Commission (“ASIC”). Here is how it will affect your business:

1.              A National System

If your business name is currently registered in multiple States, it will now be registered nationally, and you will only need to pay one renewal fee. The new system will also only require you to register a new business name once to cover all States.

2.              ABN Compulsory

You will now need to have an Australian Business Number (ABN), or be in the process of applying for one, in order to apply for a business name.

3.              Distinguishing Names

If your business has an identical name as another business operating in another state or territory, ASIC will provide additional information on the public register to differentiate affected businesses. This may be the State or Territory your business name was first registered in. The identifier will not form part of your business name, but is used to allow people to distinguish between identical business names on the public register.

4.              Renewals

If you already have a business name registered, you will not see a significant change in the system (aside from the fact that your renewal letters will be on a new letterhead). ASIC will contact you when registration is due for renewal if the renewal date is after 28 May 2012. If the renewal falls due between now and 28 May 2012 you should contact your state authority to renew the name under the current system.

5.              Registration Fees

Registration fees will be significantly less under the new system: $30 for a one year registration and $70 for a three year registration (currently $133.60 and $255.60 respectively).

6.              Ease of Access

One of the significant benefits that businesses will see from the new system will be ease of access to all of their corporate documentation in the one place. For instance, if you have a company registration, business name, or multiple business names registered, you will be able to align the renewal dates for all of those registrations under the new system.

Trademarks

From my experience, clients often make the mistake of assuming a registered business name is enough to secure the ownership of the business’ intellectual property.

It is important to remember however that registration of a business, company or domain name does not give you any proprietary rights to ownership of that name. If you require exclusive use of your business name, you should register it as a trade mark.

A registered trade mark under the Trade Marks Act 1995 gives you the exclusive legal right to use, license and sell your intellectual asset in Australia. The owner of a trade mark can apply for its registration. The registration period initially lasts for 10 years and can be continued indefinitely providing that you pay renewal fees.

It is also important that you use your trade mark—other applicants can apply to have your trade mark deregistered if you haven’t used it for more than three years.

ASIC Roadshow

ASIC is hosting a national business names roadshow to help business name holders and industry professionals understand the new business names register.

The roadshow will visit all capital cities between 17 April and 16 May 2012.

If you have any questions about your business name or intellectual property, please contact me.

Shareholder and Partnership Agreements

Posted by Byron Cannon on April 05, 2012

Shareholder AgreementI was recently asked to give advice to the client in relation to a partnership agreement that they had signed in their business.  The agreement had been purchased online and my client had basically “filled in the blanks”.

My client is now a 50% owner in the business but because of the terms of the agreement that was signed, my client has no say at all in the management and operation of the business.  This news was distressing for my client, especially given the business relationship is deteriorating.

This type of situation could easily have been avoided by the parties seeking advice and properly documenting an agreement that actually reflected the arrangement between the parties.  A properly drafted agreement can serve to avoid unnecessary disputes arising throughout the term of a business relationship.

A shareholder or partnership agreement should address a number of issues, including:

  • The correct legal entity of each owner;
  • The principal of each owner, if the owner is a company or a trust;
  • The percentage of the business owned by each owner;
  • Whether any other agreements are contingent on the shareholder/partnership agreement (such as buy/sell agreements, employment agreements, loan agreements);
  • The capital to be injected by each owner into the business;
  • What happens if further capital is required;
  • The ownership of key assets in the business such as intellectual property etc;
  • Any prerequisites for being an owner of the business (such as a professional qualification);
  • If the business is a company, the minimum and maximum number of directors;
  • Representation on the board;
  • The percentage of ownership required for certain resolutions to be passed;
  • The role that each principal plays in the business;
  • Any restraint on the owner upon leaving the business;
  • Profit distribution policy;
  • How a party can exit the ownership of the business (i.e. do they have to first offer their share in the business to the other owners);
  • What happens upon the death, total and permanent disability or trauma of a principal;
  • Can an owner be expelled from the business;
  • How is the business valued upon the exit of an owner;
  • What happens if a dispute arises.

I also have found from experience that addressing these issues at the commencement a business relationship allows the parties to address some difficult topics before they commence the business relationship.  I have had occasions where clients have decided not to go into business with another person as a result of negotiations for the shareholder agreement.

If you have any questions in relation to this important document please do not hesitate to contact me.

Asset Protection and Discretionary Trusts (Part Two)

Posted by Byron Cannon on January 30, 2012

Discretionary TrustsIn a recent blog I discussed some general comments about Discretionary Trusts and asset protection.  In this blog I will speak more specifically about the limitations of Trusts in asset protection.

Limitations on Asset Protection of Discretionary Trusts

It is very important to understand some limitations that a trust has for asset protection strategies:

 

  1. Family law – for years Family Law Courts have looked through formal trust structures to make family settlements according to who had the de-facto ownership, or control, of the trust property;
  2. Trustee’s right of indemnity – a trustee is entitled to be indemnified from the trust assets from liabilities that it incurs as trustee of the trust. This means that assets of a trust could be available to pay creditors of a trustee if trust liabilities have been incurred by the trustee. If a trustee becomes bankrupt or insolvent, this right of indemnity will vest in the liquidator or trustee in bankruptcy who could sell trust assets to pay creditors. It is therefore very important that the trustee of a trust that holds valuable assets should not engage in any risky activity, like giving guarantees etc;
  3. Unpaid entitlements – if a trustee makes a distribution but does not immediately pay the distribution, the beneficiary (or its creditors) could call upon the trust to pay that amount; and
  4. Control – if a beneficiary effectively controls the trustees power to make distributions (for example if the beneficiary is an appointor, trustee or director of the trustee company), the Courts could decide that the beneficiary has effective ownership of the trust property and include that in the beneficiaries assets to be made available to creditors.

Steps to protect assets

A number of strategies can be implemented, but it is important to follow the following steps:

  1. Consider the assets you wish to protect;
  2. Consider who owns the assets you wish to protect;
  3. Who controls the assets that are at risk (trust assets);
  4. Decide who will hold the important roles in the trust such as trustee, appointor etc
  5. Separate the control from the risk – the appointor should not be taking on any risk such as personal guarantees etc and should have its own assets completely separated (for example:
    • Mum owns the family home,
    • Dad should run the business through a trust or a company that dad is the sole trustee and shareholder of;
    • The business should own no other valuable assets; and
    • Mum can be the appointor so she has effective control of the trust.

It is very important to ensure that detailed legal and accounting advice is provided before a structure is finalised. Please do not hesitate to contact me if you have any queries.

Asset Protection and Discretionary Trusts (Part One)

Posted by Byron Cannon on January 25, 2012

Discretionary TrustsI was recently requested by KMPG on the Sunshine Coast to address their accountants in relation to my thoughts on trusts and asset protection.  This is a very good topic and it highlights the importance of giving detailed consideration, and obtaining appropriate advice, before a business or asset ownership structure is established.

In this blog I will talk about what a trust is, the roles in a trust, and benefits of a trust.

What is a discretionary trust?

Generally speaking, a trust involves the legal ownership of the property by one person or entity (the trustee) for the benefit of other parties – the beneficiaries.

In a Discretionary Trust no individual person owns the benefit of the assets as it is up to the trustee to decide who receives income or capital distributions from the trust.

Roles in the trust

There are a number of very important roles in the trust and the people or entities that carry these roles, will have an impact on asset protection strategies. 

Settlor - The settlor’s function is to effectively establish or “settle” the trust and give the assets of the trust to the trustee to hold those assets for the benefit of the beneficiaries on the terms set out in the deed.  The settlor will have no further involvement in the trust after executing the trust deed. It is important that the settlor is not a beneficiary or trustee.

Trustee – The trustee holds the legal ownership of the assets of the trust.  The trustee is responsible for the assets of the trust, and the trust itself.  The trustee has the powers to manage the assets of the trust and conduct the trust on a day to day basis. Importantly, the trustee can decide who to distribute the income and capital of the trust to.

Beneficiaries – Beneficiaries have the beneficial interest in a trust.  They benefit from the trust income and assets if the trustee elects to distribute to a beneficiary.

Appointor – The appointor is the party who has the ultimate control over the trust because the appointor can appoint and remove the trustee. It is this position, along with the trustee, that needs to be considered very carefully when establishing a trust.

Benefits of a Discretionary Trust

There are a number of benefits from establishing a family trust including:

  1. Tax advantages – income from a trust can be distributed to different parties to assist in tax planning;
  2. Asset protection – subject to some limitations, a family trust can protect family assets from the liabilities of one or more family members;
  3. Succession planning – a trust allows family assets to pass to future generations with minimal tax and stamp duty implications; and
  4. Estate planning – a trust can be a useful tool to avoid challenges to a will.

In my next blog I will discuss the limitations on asset protection for trusts, and discuss some asset protection strategies for trusts.

It is very important to ensure that detailed legal and accounting advice is provided before a structure is finalised. Please do not hesitate to contact me if you have any queries.

An Urgent Alert For All Australian Businesses - Are you ready for PPSA?

Posted by Byron Cannon on December 07, 2011

Personal PropertyThe Personal Property Securities Act (“PPSA”) will come into effect early in 2012. This legislation is very important and you need to act now. It will dramatically alter the way in which security over personal property can be protected.

“Personal property” is any property, whether tangible or intangible, e.g. machinery and equipment, inventory, motor vehicles, book debts, receivables, stock, crops, trademarks and patents.  Only land, fixtures and certain licences are excluded from the definition of “personal property”.

If you answer yes to any of the following questions, you need to urgently get legal advice to protect your interests

  • Do you own any equipment, goods or other property that you hire to other people?
  • Do you sell goods on consignment?
  • Do you manufacture and sell goods?
  • Do your conditions of sale include a retention of title clause?
  • Do you lease chattels as part of a lease of land?      
  • Do you have security over a motor vehicle, boat or aircraft?
  • Do you have security over property which has a serial number identification?
  • Are you involved in transactions under which debts are assigned to you?
  • Are your security agreements in writing?
  • Are your security agreements registered on existing registers?
  • Do you lend money for purchase of inventory or for specified articles of personal property?
  • Do you take security over intellectual property e.g. design, patent, plant breeder’s right, trademark?
  • Do you have “fixed and floating” charges?
  • Do you have an interest in livestock, crops or equipment not in your possession?
  • Do you buy or sell personal property either with real estate or on its own?

IF YOU DO NOT PROTECT YOUR SECURITY IN PERSONAL PROPERTY YOU RISK LOSING IT

If you feel that any of your transactions will be affected by PPSA, you should ensure you have proper advice about protecting them.  This posting sets out some areas affected by PPSA which may be unexpected.  If you have transactions in any of these areas, you should urgently seek advice about protecting your interests.

Register to protect your interests

Registering a security interest gives qualified priority.  Any delay in registering the interest or any inaccuracy in the registration could be disastrous.  Any new security interests created after the commencement of PPSA must be registered quickly (there are strict time limits for some securities) and may be registered before the transaction is effected.

Our role

It is not my normal practice to promote our business on this Blog, but this legislation is very important and you need to act now.  Because of this we have a special offer for December 2011for all of the subscribers of this blog and for anyone one that you may feel will benefit.

We are offering a free review of your documents so that we can let you know whether you are protected.

Failure to protect security interests could be expensive.  I therefore urge you to think seriously about the matters raised.

Please contact either Cheré Meakins or Byron Cannon to discuss this.  Given the urgency of this for your business, our offer at Ferguson Cannon to review your documents free of charge will only last to 19th December 2011.

Asset Protection for your Business

Posted by Byron Cannon on August 02, 2011

Panel (2).jpgI was recently invited to sit on Your Business Panel. The panel was put together with the objective of assisting business owners by providing expert advice from different professions, in a unique question and answer session.

One question asked during the panel’s session highlighted to me the importance of asset protection in the structure of your business, and also the importance of keeping these asset protection objectives at the forefront of your mind throughout the course of your business.

Getting the Structure Correct - but not Sticking to the Structure

The case that sprang to mind was a recent matter where I acted for business owner.  A brief summary of the facts are as follows:

  1. The client had previously sought specific advice in relation to protecting assets if the business was to fail;
  2. The client had received advice to set the business up so that it was operated by a company;
  3. The client was advised to ensure that all personal assets that she wished to protect were purchased in a trust, which was completely separate to the company;
  4. The client’s business was very profitable and the client wanted to purchase assets in the trust;
  5. The client purchased assets in the trust, however transferred funds by way of a loan from the business to the trust.  The loans, over a period of time, crept up to be millions of dollars;
  6. The business is now experiencing critical cash flow issues and has large debts to a number of creditors, who are threatening legal action with the ultimate objective of winding the company up;
  7. At my first consultation the client understood that the assets in the trust, along with her own personal assets were protected;
  8. Some personal guarantees had been signed with creditors.

The Correct Structure for your Business

The structure implemented by this particular client had the right idea, but the execution was wrong.  Some tips for your business structure include:

  1. Do not have the business in your own name, unless you hold no assets and have absolutely no risk of being sued (very rare!)
  2. Own the business in a company or trust structure, to avoid personal liability (keeping in mind that you can still be personally liable in certain circumstances such as insolvent trading and not paying Superannuation for your employees)
  3. Avoid signing personal guarantees
  4. When you buy assets of value, do not buy them in the same entity that owns your business
  5. Do not make inter entity loans to buy assets
  6. Try to keep assets separate to your business finances (i.e. do not offer them up as security to your bank, if possible)
  7. Constantly review your structure and get legal and accounting advice before you buy and sell an asset.
  8. Review your will

Inter Company Loans

What my client failed to realise when carrying out the asset protection objective of buying assets in a trust, was that the monies borrowed from the company could be clawed back by a liquidator, leaving the assets purchased in the trust vulnerable to being sold to fund the payback of the loans, and ultimately going to the creditors of the company. 

This example highlights the importance of:

  1. getting professional advice when you first establish your company and business structure from an asset protection perspective, and;
  2. diligently following your asset protection objectives; and
  3. obtaining advice before any significant investments, or liabilities are entered into. 

This client’s precarious situation could have been avoided if professional advice was obtained before the investments were purchased.

If you would like to discuss any of your asset protection objectives, please contact me as I would be more than happy to assist.