Consider the details when starting a new business

Be it a start-up fashion label, professional services provider or eatery, the biggest priority for people behind a new business is often choosing a clever name for their business and getting their product onto the marketplace.

Few people take the time to ensure they have trademarks registered and appropriate legal structures in place to ensure they are in the best possible position when the business grows or, in the regrettable event, fails.

Most business owners register a business name when starting a business, but mistakenly do not register any trademarks.

The effect of failing to register trademarks will often not be unveiled until after a business owner has operated a business for some months or even years, investing money and countless hours to build a good reputation linked to the business name.

The effect is often revealed when the business owner receives a letter claiming that they are illegally using a registered trademark. If the illegal use of the trademark is established, it can result in the business owner being forced to stop using the business name.

Broadly, registering a business name only provides the business with an identity and does not give the business owner exclusive rights to use the name. The right to exclusive use comes with trademark registration. A trademark gives the owner the exclusive right to trade under a business name, usually Australia wide.

It is also important to register a trademark to ensure copy-cat businesses using the same or a similar name do not start up to absorb the good reputation associated with an existing business name or trademark. Whilst there are avenues available to a business owner if they first operate under a business name but do not register a trademark to be able to stop a copy-cat business, it is far simpler and cheaper if a trademark is registered from the outset.

Equally as important as registering a trademark is ensuring a suitable legal structure is used to run a business. The most common structures used for businesses are sole-trader, partnership, company and trust.

The most suitable legal structure will depend on a number of factors including the business industry, the relationship status of the business owner, whether the business is to be owned by one person, a group of family members or friends, future needs of the business owner and assets held by the business owner, for example a family home, shares or investment properties.

The legal structure chosen will impact on how much tax the business owner must pay annually, whether an owner’s non-business assets are protected if the business gets into financial trouble, the amount of paperwork required and how much capital gains tax must be paid if the business is sold in the future.
   

Getting sound advice may increase a business’ startup costs but in the long run the costs of getting things right from the outset pale in comparison to the costs of using the wrong type of structure or not having the correct trademarks registered.

For further information please contact:

Ashleigh Wall
Lawyer
Harwood Andrews
03 5226 8559
awall@harwoodandrews.com.au