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.

Business Succession Planning

Posted by Byron Cannon on March 20, 2012

Business StrategyBusiness Succession Planning can be a difficult and long process, however the rewards of a properly documented Business Succession Plan far outweigh the time and effort spent in preparing the plan.  Too often have I seen clients attend my office after an event such as death or retirement where a business is suffering.  Often problems could have been avoided with a properly documented Business Succession Plan.

What is Business Succession Planning?

In simple terms, Business Succession Planning is developing a strategy to transfer the ownership, management and financial responsibility of a business.

Who should be involved in the Business Succession Planning?

There are a number disciplines and professionals that should be engaged to ensure that the Business Succession Plan achieves all of your objectives.  Often I will meet with Accountants, insurance brokers, financiers and sometimes management consultants to ensure that all areas of expertise are involved.

What matters should be addressed in Business Succession Planning?

It is difficult to outline all matters that should be outlined because each business is different.  Depending on the business the following matters should be factored into the Business Succession Plan:

  • Retirement plan for key stakeholders in the business;
  • Management succession plan which deals with the timing of the handover of the management of the business;
  • Equity succession which deals with the actual transfer of ownership, and payment for this.
  • Once the succession plan has been finalised it will need to be incorporated into the estate plans of the current owners.

Process for Planning

It is very important a structured process to approach the Business Succession Plan.  The process will involve consultation with appropriate professionals and deal with all of the elements that need to be considered.  Part of the process also involves conducting a review and due diligence of the business.

This approach will include considering the following questions:

  1. Who could and would run the business for you if something was to happen;
  2. How do you propose to continue your income after your exit from the business;
  3. How did the other important stakeholders in the business view this;
  4. What is the business worth;
  5. What insurances do you have in place, both for the business and personally;
  6. Do you have legal documents such as Shareholder Agreements, Will, Power of Attorney, Buyer Solicitor, Business Will;
  7. Do you have a strategic plan for your business;
  8. Who are the key stakeholders in your business that will continue to be involved in the business after you exit;
  9. When would you like to exit the business.

It is very important that details consideration is given to any business succession plan, and professional advice sought from a number of disciplines.  Please do not hesitate to contact me if you would like to discuss this very important strategy for your business.

Buying A Franchised Business

Posted by Byron Cannon on December 15, 2011

Franchise AgreementFranchised businesses differ from other businesses in a number of ways.  They essentially offer the ability to run your business utilizing the franchisor’s “system” in a way that allows you to gain benefit from the name, marks, brand, image, and general “know-how” of a much bigger and more expansive organization.

Whilst operating a franchised business provides you with a great number of benefits, there are nonetheless a number of pitfalls that prospective franchisees need to look out for when entering into their franchise agreements.

Franchising in Australia is governed by the Franchising Code of Conduct which operates to regulate the conduct of both franchisors and franchisees.  As an offshoot of the Australian Competition and Consumer Regulations, it also provides for sanctions against non-complying entities.

At its most fundamental level, the Code dictates that before you enter into a franchise agreement, the Franchisor must provide you with a copy of the following documents:

  1. A copy of the Code;
  2. A copy of the franchisor’s “Disclosure Document”; and
  3. A copy of the Franchise Agreement in the form in which is to be executed by you, at least 14 days before you enter into the Franchise Agreement or make a non-refundable payment to the franchisor.

Disclosure Document

The Disclosure Document  is designed to provide you with as much  information as possible so you can make an informed decision when considering entering into a Franchise Agreement with the franchisor.  Although it is important that you consider all of the information contained within this document, I generally advise my clients to pay particular consideration to the following:

  1. The experience of the Franchisor, including its management and directors;
  2. Whether the Franchisor has been involved in previous litigation or other Court proceedings;
  3. Details of other current franchisees and their locations;
  4. The number of franchisees that have exited the system;
  5. Details of costs and expenses that may be passed on by the Franchisor to you; and
  6. The Franchisor’s financial reports and accounts.

Franchise Agreement

Your franchise agreement is just like any other contract and as such it is imperative that you read it and fully understand it before signing it.  Considerations that you should pay particular attention to in this document include:

  1. Whether or not your site and/or territory are exclusive to you and whether or not the Franchisor can grant additional franchises within your area or even operate their own business in competition with you.
  2. The extent of the fees, levies, and/or other expenses that you are required to pay under the franchise system.
  3. The exact nature of the rights that you are granted under the franchise system and the restrictions on your use of the franchisor’s brand.
  4. Whether or not the lease of your business premises is to be held in your name or in the name of the franchisor.
  5. Whether or not you are required to undertake a fit-out or refurbishment of the business premises during the franchise term.
  6. The extent of the training/assistance that will be provided to you by the franchisor at the beginning of, and throughout, the franchise term.
  7. The process that is involved should you wish to sell your franchised business at some stage in the future.

Whilst franchised businesses can be easier to operate than other businesses in many circumstances, they are accompanied by very specific restrictions in the way in which you are able to operate your business to ensure that the Franchisor’s interests are protected.  For this reason it is essential that anyone considering entering into a franchise agreement seeks legal advice before doing so.

Capital Gains Tax and Life Insurance Policies in Business Wills

Posted by Byron Cannon on November 17, 2011

Life InsuranceI was recently asked to give a presentation for Business and Estate Planning Specialists. This company specialises in selling risk insurance for businesses and individuals. They had asked that I explain to their team the taxation implications for various forms of life insurance policies. 

One issue that was discussed is why it is so important to structure life insurance policies properly when preparing Business Wills or Buy/Sell Agreements.

Is Life insurance a Capital Gains Tax asset?

The Capital Gains Tax legislation treats insurance policies as a Capital Gains Tax asset, and the payment of the insurance proceeds as a disposal of the asset.

Capital Gains Tax asset a Chose-in-action

The definition of a Capital Gains Tax asset includes a “chose-in-action”. A chose-in-action is a contractual promise to do something or to pay something.  An insurance policy is a chose-in-action as it is a contractual promise by the insurer to pay the amount insured upon the occurrence of an event (ie. death). This asset will be disposed upon the performance of the contract (ie. the payment of the insurance proceeds). This results in the disposal of a Capital Gains Tax asset.

Now that it is established that an insurance policy is a Capital Gains Tax asset, careful consideration needs to be given as to whether any of the Capital Gains Tax exemptions apply.

Capital Gains Tax exemptions

Death benefits will only be exempt from Capital Gains Tax where the recipient is either:

(a)     The original beneficial owner - this can include two or more people such as the case when policies are owned by business partners over each other, and can also include a company or trust; or

(b)     Acquired the interest in the policy for nil consideration.

The term “original beneficial owner” has also been stated by the ATO to be the first person who:

(a)     At the time the policy is effected, holds the rights under the policy; and

(b)     Possesses all the normal incidents of beneficial ownership.

Ownership of policies by surviving business owners

It is very important that if insurance policies are owned by surviving business owners, there are no changes to the ownership of the business between the time that the policy was taken out, and the death of the deceased owner. 

The reason for this is that if new owners are introduced into the business, and those owners wish to take advantage of the insurance policy, the definition of “original beneficial owner” may not be met as:

(a) That person would not have been the original beneficial owner; and

(b) If money was paid to purchase the share in the business, and the interest in that life insurance policy, there would not have been an “acquisition in the interest of the policy for nil consideration”.

It is therefore essential that if new owners are introduced into the business, that the existing policies are terminated and new policies entered into.

Ownership by deceased estate

If insurance policies are owned by the deceased estate, the deceased estate would be the “original beneficial owner” and the estate would be exempt from Capital Gains Tax in relation to the life insurance proceeds. 

However, for Capital Gains Tax purposes, the estate would be deemed to have disposed of the interest in the business, at a deemed market value, and would have to pay Capital Gains Tax on the capital gain realised upon their disposal of the interest in the business.

Business Wills

It is essential that when drafting Business Wills, careful consideration is given to the ownership of life insurance policies so that unwanted Capital Gains Tax consequences are not brought about.  Please do not hesitate to contact me if you would like to discuss any aspect relating to Business Succession, Business Wills, Estate Planning, or the ownership of life insurance policies.

Work Health and Safety - Company Directors Getting Ready for the New Laws

Posted by Byron Cannon on September 13, 2011

Australia has 10 different laws relating to Occupational Health and Safety. This will change on 1 January 2012 with the introduction of the Work Health and Safety Act.  The Federal Government has established Safe Work Australia to implement the new laws.

The Australian Institute of Company Directors, in the August 2011 edition of their magazine “Company Director” published an article by Domini Stuart summarising the changes.

The article referred to a checklist prepared by Steven Cole, chairman of Emerson Stewart for company directors to implement to ensure their businesses are ready for the new laws (this also applies to business owners of all kinds).  The list includes:

  1. Engaging an occupational health and safety expert to give a high level presentation to the board (or your business) on the principles and effects of the new regime;
  2. Review the existing occupational health and safety arrangements and practices and report these to the board, along with recommendations for improvements and assured compliance;
  3. Use these findings as the basis for a comprehensive review of your business’ occupational health and safety policies and procedures;
  4. If your business does not have a specialist occupational health and safety expert on the executive, ensure that an appropriate and suitably competent person has responsibility for the occupational health and safety function in your business;
  5. Schedule regular reports and reviews of your business’ occupational health and safety practices in your calendar, including board meetings;
  6. Ensure board members, or management if you are not a company, visit relevant work sites from time to time so they have a thorough understanding of the workplace environment and practices.

Directors and management of businesses throughout Australia are now in a position to influence the occupational health and safety regime of their organisation.  It is imperative to address this now so that appropriate procedures are in place come 1 January 2012.  It is very important to establish a culture now to ensure safety is taken seriously.

Please contact me if you need any assistance with your businesses implementation of its occupational health and safety practices so as to ensure compliance.

The Personal Property Securities Act - important changes for businesses supplying goods on credit

Posted by Byron Cannon on September 05, 2011

Businesses and individuals that provide finance secured by personal property, or who supply goods on a retention of title (ROT) basis, should be aware of the introduction of the Personal Property Securities Act.

The new legislation will require that, where businesses are supplying goods on credit, their interest should be registered on the new Personal Property Securities Register (PPSR) to secure the interest in the credit provided to the customer.

In order for the legislation to apply to you, your sales terms are required to include a “retention of title clause” (“ROT clause”).  The ROT clause seeks to retain your ownership in the goods until such time as the buyer has paid for the goods in full.

To ensure that your ROT arrangement is enforceable against your customers, the legislation provides that the ROT must have “attached” itself to the goods.  In the case of an ROT clause, attachment occurs where you give value for the security interest arising from the transaction, or otherwise do an act by which the security interest arises.  In the context of an ROT agreement, the value given by the supplier will be the delivery of the goods or use of the goods pending payment.

If your customer defaults or becomes insolvent, there is a risk that other creditors who hold an interest in the same goods as you (such as banks), will have better rights in the goods than you.  To ensure that this does not happen, you will need to register your ROT agreement on the Personal Property Securities Register (“PPS Register”). Where the requirements of the PPS Act have been complied with, registration of an ROT agreement will ensure that your security interest takes priority over all other, including earlier, security interests in your goods.

In circumstances where you make repeated supplies to the same customer, you are only required to make a single registration against the customer.  This is because a single transaction is valid for one or more orders against the customer.

At this stage it is anticipated that the PPS Register will be up in running in October 2011. It is important that you review and amend your Sales Terms now, in preparation for the commencement of the PPS Register.

Corporate Governance and Directors Duties

Posted by Byron Cannon on August 21, 2011

Corporate GovernanceI recently met with a client who was the sole director of a company turning over in excess of $10 million dollars. There were 9 shareholders in total, with my client being a majority shareholder.

I was concerned about the general lack corporate governance and reporting to the shareholders, as they only had 1 meeting per year, and were not furnished with very much information at all. I did not want my client to be breaching her duties to the shareholders

Reporting Requirements to Shareholders

The Corporations Act provides for minimum reporting requirements, which are summarised as follows:

1. Section 314 of the Corporations Act provides that a company is required to provide its members with all of the following reports:

(i) The financial report for the year;

(ii) The directors report for the year; and

(iii) The auditors report on the financial report,

by doing any of the following;

(iv) sending the member a hard copy of the reports;

(v) if the member has elected to receive the reports as an electronic copy, then an electronic copy of the reports;

(vi) by making a copy of the reports readily accessible on your website;

(vii) by directly notifying, in writing, all members that a copy is accessible on the website, and specifying the direct address on the website where the reports may be accessed.

2. In addition, the directors are required to, on at least one occasion each year, directly notify in writing each member that:

(i) the member may receive, free of charge, a copy of the reports; and

(ii) if the member does not elect to do so, the member may access the reports on a specified website.

Meetings for Shareholders

In order to validly call a Shareholders meeting, at least 21 days notice must be given of the meeting to each of the shareholders entitled to vote at the meeting, unless the company constitution specifies a longer period of notice. The notice should state:

1. The place, date and time of the meeting and the technology used to facilitate the meeting, if applicable

2. The general nature of the meeting’s business

3. The intention to propose a stated special resolution, if any; and

4. If a shareholder has a right to appoint a proxy, this must be stated as well as the procedures involved.

Directors Duties

In managing the business of the company, each of its directors is subject to a wide range of duties under the Corporations Act and other laws. Some of the more important duties are:

1. to act in good faith;

2. to act in the best interests of the company;

3. to avoid conflicts between the interests of the company and the director’s interests;

4. to act honestly;

5. to exercise care and diligence;

6. if the company is in administration – to report to the liquidator on the affairs of the company; and

7. if the company is being wound up – to help the liquidator (by, for example, giving to the liquidator any records of the company that the director has).

Operating a company has very important obligations and these must be met by each of the Directors. If you have any questions or would like to discuss any aspect of your roles as a director, or the governance of your company, please do not hesitate to contact me.

 

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.