At Monardo Solicitors, we specialise in providing commercially astute legal advice throughout the lifecycle of your business.

We focus on taking the time to talk to you and to understand your business, as well as your broader commercial objectives, because we know that legal issues and solutions must be evaluated with an understanding of their commercial implications.

We specialise in helping you through the growth and expansion of your business, and can assist whether you are:

• planning or establishing a new business

• growing your business

• experiencing periods of financial stress

• exiting your business

• coming up with a succession plan for your business.

We are experienced in corporate law and can advise you on:

• Business purchases and sales

• Business structures

• Corporate governance and compliance

• Commercial contracts

• Franchising.

If you are thinking of purchasing, selling or merging a business, you will need the assistance of a lawyer who not only understands the legal issues but has a detailed understanding of the commercial environment in which you operate.

Purchasing or selling a business is never a decision that can be taken lightly.

If you are buying a business, you need to understand exactly what you are purchasing and ensure that you are getting value for money. After all, the process raises not only financial questions but legal ones.

If you are selling your business, the business represents months or years of hard work, so it is important that the sale is properly researched, negotiated and executed.

At Monardo Solicitors, we have extensive experience advising clients on the purchase, sale and merger of businesses. Whether your business is small or large, we always take the time to understand your broader business objectives and use that knowledge to help you prepare for, negotiate, manage and complete the transaction.

Key issues when buying or selling a business

When you are buying or selling a business, a range of factors come into play. You need a lawyer who understands the:

• industry in which the business operates

• statutory and other regulatory requirements

• employment arrangements

• industrial relations environment

• property issues

• intellectual property issues.

How can we assist you?

If you are thinking of buying, selling or merging a business, we suggest you talk to us as soon as possible.

We can assist with:

• the preparation of a heads of agreement (which will enable you to lock in key binding terms that allow for the agreement subsequently to be documented)

• the selection of an appropriate business structure to purchase the business

• running the due diligence, whether you are the vendor (to ensure everything is organised correctly and you maximise your sale price) or purchaser (to ensure you know exactly what you are buying and you pay a fair price for it)

• your negotiations

• navigation through any regulatory and banking requirements, so that your transaction does not suffer unnecessary delays.

Due diligence

Due diligence is a particularly important aspect of buying or selling a business.

For Vendors

If you are a vendor, it is important to take the time to review and coordinate your business affairs, so you can be sure the business is compliant, organised and the paperwork is complete. When you open up your business for investigation by potential purchasers, they will be looking for holes, and if they find any, it will be reflected in the purchase price. In a worst-case scenario, a lack of preparation could mean that you could lose the deal altogether.

For Purchasers

If you are a purchaser, you need to make sure you give yourself adequate time to conduct your due diligence, so that you (and your financiers) are satisfied that the business you are buying is what the vendors represent it to be, is compliant and fairly priced.

The due diligence process involves reviewing:

• the corporate structure and governance documents

• regulatory licences

• permits and approvals

• material contracts

• employment records

• asset condition reports

• finance agreements

• leases and real property documents

• active litigation

• insurance documents.

The aim of any due diligence is to ensure that the process is undertaken as thoroughly and efficiently as possible. Most importantly, it should identify any problems, so they can be dealt with quickly. Consequently, it helps if you have an experienced legal team running the process for you.

Commercial leases

If you are buying a business that leases existing premises, it is important that an experienced lawyer review the lease to outline its terms and ascertain the process for transferring it. It may be that the lease contains unfavourable terms that you wish to vary, such as the:

• rent review process

• termination rights

• works clauses

• indemnities

• lease term

• options.

We can help you negotiate with the property owner to vary the lease to suit your requirements.

Regulatory compliance

It is also important to ensure you have (or obtain) all necessary regulatory licences, authorisations and permits required to conduct business at the premises.

We can help you check the validity and adequacy of those licences, authorisations and permits.

Other issues

• There are a number of other issues you may need our help with if you are buying a business, including:

• Does the business have key contracts with customers or suppliers? How do you make these enforceable?

• Does the transaction include stock? If so, the contract will need to outline a stocktake process.

• Is there any plant and equipment included in the sale? If so, it may be necessary to obtain valuations and warranties regarding its condition.

• Does the business have existing employees? Are all, some or none of those employees to be retained?

• What are the tax implications of the transaction, including GST, stamp duty, income tax and capital gains tax?

• In order to protect the goodwill of the business, do you need to restrain the vendor from setting up a competing business for a period of time?

• In short, you need the support of a legal team that will investigate the transaction from a number of angles and manage the process efficiently.

At Monardo Solicitors, we can help you ensure that the purchase or sale of your business runs smoothly.

When you are setting up or purchasing a business, you need to decide what is the most appropriate business structure to use to run your business. This is important because it not only has financial implications but legal consequences. The selection of a business structure raises questions relating to:

• control of the business

• liability

• asset protection

• taxation

• estate planning

• business succession.

Which business structure is right for your business?

Choosing the most appropriate business structure is much more complicated than simply deciding to incorporate a company. Ideally, you should become familiar with the various options, and then discuss the matter with both your lawyer and financial adviser.

What is a sole trader?

A sole trader is the sole business owner. You trade in your own name, although you may register a business name.

From a legal perspective, a sole trader is the simplest business structure. There is no distinction between the owner and the business itself. However, you need to be aware that you are legally responsible for all aspects of the business, which means you cannot share debts and losses. Your personal assets will be at risk from any liabilities the business incurs.

Like any other business, as a sole trader you can have employees.

Upon the death of the sole trader, the business is dealt with according to the will of the deceased sole trader.

The two main advantages of being a sole trader are:

• the low start-up costs involved

• the reduced regulations in comparison to other structures.

What is a partnership?

A partnership involves two or more persons engaging in business together with a view to making and sharing profits. It is a relationship, not a separate legal entity. Each partner jointly owns the business assets and liabilities.

If you set up a partnership, you generally need to register a business name.

Partners are personally jointly and severally liable for the debts and liabilities of the partnership. Each partner is liable to the creditors for the full amount of the debts.

Partnerships can be formed using a verbal agreement. This is common when friends are setting up partnerships. In such cases, the law assumes everything is shared equally. However, this can be problematic if issues between the partners arise. Therefore, it may be more sensible to prepare a partnership agreement that states clearly the obligations and rights of each partner.

Partnerships are simple and inexpensive to set up. They also have minimal reporting requirements. Too, they allow shared management responsibilities and provide more opportunities for tax planning than does being a sole trader.

At the same time, partnerships can run into problems over issues such as profit sharing, administrative control and business direction. The joint and several liability of partners can mean that each partner is fully responsible for the debts and liabilities incurred by the other partners.

Partnerships are governed by the Partnership Act 1892 (NSW) and the terms of any partnership agreement.

What is a company?

A company is the most common business structure used by small-to-medium-size businesses in Australia. It is more complex structure than a partnership or sole trader.

A company is a separate legal entity that is distinct from its owners (shareholders or members). This means that the company will have its own assets and liabilities.

A company has the same rights as a natural person, which means that it can incur debt, and, like a person, can sue or be sued.

Companies are managed by company officers who are called directors and company secretaries.

The shareholders of the company are not personally liable for the debts of the company.

Companies are perpetual and do not cease existing with the death of a shareholder.

Small-to-medium business owners often use a type of company structure called a proprietary limited company. This type of company does not sell its shares to the public and has limited liability.

Larger companies that want to sell shares to the public can still limit their liability by setting up a public company.

You may wish to incorporate a company to protect your personal assets. It is important to note that, in some cases, the owners (shareholders) of companies may be liable for a company’s debts, such as when they have provided personal guarantees to borrow money.

Another benefit of incorporating a company is that income generated by the company attracts a company tax rate (currently, 30 per cent).

All companies must be registered with the Australian Securities and Investments Commission (ASIC).

In Australia, the activities of companies are regulated by the Corporations Act 2001 (Cth).

What is a trust?

A trust is a business structure where the trustee hold the trust property (and runs the business) on trust for the beneficiaries of the trust. This means the trustee is responsible for holding income, assets or property for the benefit of others (the beneficiaries).

A trustee can be an individual person, a partnership or a company.

Trusts are regulated by the terms of the trust deed and the general law.

A trust is not a separate legal entity.

A trustee is liable for the debts incurred in respect of carrying on the trust business and its liability is not limited to the assets of the trust.

One of the main reasons behind setting up a trust is to protect assets. In addition, there may be tax advantages associated with setting up a trust.

What is a discretionary trust?

A discretionary trust (or a family trust) is where the trustee has discretion according to the terms of the trust deed to distribute income and/or capital among the nominated beneficiaries.

They are generally set up to hold a family’s assets for the benefit of providing asset protection and tax planning for family members.

What is a unit trust?

A unit trust is where the beneficiaries hold an allocated number of issued units in the trust. It is like a company where the trust’s property (business or investments) are divided into a number of shares called units. The number of units you hold will determine your entitlement to your share of income, capital gains and voting power.

How do Monardo Solicitors approach finding the right corporate structure for your business?

Understanding the legal effect of your proposed business structure is vital in making effective plans for your business. If you don’t understand the implications of the structure you have selected, there could be adverse tax implications or you could inadvertently transfer ownership of the business to the wrong hands.

At Monardo Solicitors, we also understand that your choice of business structure may depend as well on the industry in which you are working. Therefore, we will always take the time to become familiar with, and obtain a deep understanding of, your industry.

We can help you with:

• sole trader set up

• partnerships

• limited liability companies

• family trusts

• discretionary trusts

• unit trusts

• joint ventures

• business succession planning.

We can prepare:

• constitutions

• trust deeds

• partnership agreements

• joint venture agreements

• shareholder agreements.

What is franchising?

Franchising is a business relationship where the franchisor (the owner of the business providing the product or service) assigns the right to market and distribute the franchisor’s goods and services, as well as the right to use the business name, to another person (the franchisee) for a fixed period of time.

If you are thinking of franchising your business, you need to be aware that the legal framework for franchising is a complex area of the law that is heavily regulated. In Australia, the Australian Competition and Consumer Commission (ACCC) regulates the Franchising Code of Conduct.

What is the Franchising Code of Conduct?

On 1 January 2015, the ACCC introduced a new Franchising Code of Conduct. If you are a franchisor, franchisee or potential franchisee, it is important that you understand your rights and responsibilities under the Code.

The new Code:

• introduces an obligation for parties to act in good faith in their dealings with one another

• introduces financial penalties and infringement notices for serious breaches of it

• requires franchisors to provide prospective franchisees with an information sheet outlining the risks and rewards of franchising

• requires franchisors to provide greater transparency in the use of accounting for money used for marketing and advertising, and to set up a separate marking fund for marketing and advertising fees

• requires additional disclosure about the ability of the franchisor and a franchisee to sell online

• prohibits franchisors from imposing significant capital expenditure except in limited circumstances.

The ACCC has the power to investigate breaches of the Franchising Code or the Competition and Consumer Act 2010 (Cth) and can take enforcement action where appropriate.

What is the difference between franchising and licensing?

In Australia, the difference between a franchise agreement and a licensing agreement is very simple. The Franchising Code of Conduct provides a definition of a franchise. If an arrangement between parties meet all the criteria, then it is a franchise agreement.

The criteria are as follows:

• The agreement takes a form that is in whole or part written, oral or implied.

• The agreement grants to a person the right to carry on the business or of offering, supplying or distributing goods or services in Australia under a system or marketing plan that is substantially determined, controlled or suggested by the granting party.

• The business is to be substantially or materially associated with a trademark, advertising or commercial symbol owned, used, licensed or specified by the granting party.

• Before starting or continuing the business, the grantee party is required to pay, or agrees to pay, the grantor party a fee in their conduct of the business.

It is important to understand that you cannot ensure a licence agreement is categorised as a licence agreement, rather than a franchise agreement, simply by calling it a ‘licence agreement’. The case law shows that if a licence agreement meets the definition provided in the Franchising Code of Conduct, it will be categorised as a franchise agreement and must comply with the Code.

Quite often, the key consideration in determining whether the agreement does constitute a franchise agreement or a licensing agreement will come down to the court’s interpretation of a ‘system or marketing plan that is substantially determined, controlled or suggested by the granting party’.

How does Monardo Solicitors approach franchising/licensing agreements?

At Monardo Solicitors, we believe that franchising can be an exciting and rewarding experience. However, you need to be aware of your rights and obligations under the Franchising Code of Conduct.

Are you thinking of franchising your business?

If you are thinking of franchising or licensing your business, you will need a lawyer who can draft a franchise or licensing agreement that will stand the test of time. It is particularly important that the agreement will protect a franchisor’s rights in the future. The agreement will also need to be flexible, so as to allow for changes in the franchise system.

In the case of a franchise, you will also need to make sure you comply with the strict requirement for disclosure under the Franchising Code of Conduct.

Are you thinking of buying a franchise?

If you are thinking of buying a franchise, you will need a lawyer who can review the franchise agreement, disclosure and other documents. Therefore, it is important that the lawyer has a detailed understanding of franchising.

At Monardo Solicitors, we have experience in franchising, having drafted the franchise agreements for Fletchers Fotographics and Oporto.

We can assist you with the following:

• advice on business structures (partnerships, companies, trusts and joint ventures)

• drafting disclosure documents and franchise agreements

• reviewing disclosure documents and franchising agreements

• due diligence

• advice on terms and conditions of sale or purchase

• advice on complying with the Competition and Consumer Act and the Franchising Code of Conduct

• trademark registration and other protection for your intellectual property

• negotiating leases and licences to occupy

• negotiating, mediating and resolving any disputes between franchisors and franchisees.