Embarking on a new business venture?
One the most important things to get right from the outset is to ensure that your business is established as the right legal entity.
As a sole trader, you trade in your own name. The business is owned by you and you are liable for any business debts. This means that your personal assets are also exposed to any business debts. To protect your personal assets, you may want to consider incorporating as a company, or transferring personal assets to a family trust.
In a partnership, you are both jointly and individually liable for business debts. This means that one partner can be responsible for the other partner’s share of the business debts, so you need to consider how you can protect your assets. A written partnership agreement, setting out each partner’s responsibilities and how the business is to be sold in the event of a relationship breakdown between business partners, is advisable, but not a requirement.
A company is the safest way to protect your personal assets from business debt. As a shareholder in a company, you are not responsible for company debts beyond any debt owing on the shares you own (which is usually zero). A company does not protect you if you give personal guarantees for company debts. Personal guarantees are often required by landlords, banks and suppliers.
Seeking sound legal advice and setting the right platform for your business will give you the peace of mind you need to forge ahead and embark on your new venture with confidence.