Initial company structure for a sw development company
Hello I have a full time job during the day but I've been working in my spare time with some hardware manufacturers in the IoT (internet of things) space.
My plan is to setup my own company to offer software services to that company and others.
I do have a team of developers that would be ready to join me initially as out of hours, as long as the revenue stream is not sufficient to become our main source of income.
What is the best way to go about in this interim period (1 to 2 years in my estimation)?
1. Have every developer get and ABN as sole trader and bill our client separately?
2. Setup a company and bill through that company (and then allocate the revenues to us developers as a salary)?
Hi there. There are different ways you can structure and run a business, each with their own advantages and legal obligations.
Running a business as a sole trader is generally the easiest option. If you have an ABN, you can invoice your customers and account for your revenue as part of your personal income when you lodge your tax return. However, operating as a sole trader can expose you to the most risk. If something goes wrong in your business that causes a loss to a customer or a third party, you may be personally liable for that loss. In other words, if someone successfully sues you in court, you may be required to pay compensation to that person from your personal assets.
A popular business structure is a company. A company is a separate legal entity that is created when you incorporate and register your business. A company can have its own assets and debts, enter contracts with third parties, and sue and be sued. A company is owned by its shareholders who can change from time to time. You can be the sole shareholder if you so choose.
Every company has a least one director who is responsible for the direction and management of the company. In your situation, this could be you alone or together with anyone else you want to appoint as a director. In Australia, directors and other company officers must comply with a number of legal obligations under the Corporations Act 2001 (Cth). There are also reporting requirements and associated administrative costs with running a company. The Australian Securities & Investments Commission has more information about setting up and running a company (www.asic.gov.au).
While the downside to running a company is the regulation and administration involved, the main benefit is that, if your company is sued by a customer or supplier or another third party, you will generally not be personally liable. Instead, any legal claim will be against the assets of the company.
In addition to the above, there are several other things to consider when setting up a business. For example, depending on the type of business structure you choose, you may need to apply for an ABN, a Tax File Number, register your business name and domain name, lodge a trade mark application to protect any intellectual property, take out business insurance and/or register for GST. More information about starting a business can be found atwww.business.gov.au.
In your situation, if you are looking to set up an interim arrangement before you register a company, you could simply invoice the customer as individual service providers, each with a different ABN. However, there may be some complication with the nature of the legal agreement or contract that governs the services to be provided. It would be preferable to have only one contract between the customer and the service providers, rather than multiple contracts with each of the service providers. The easiest way to achieve this is to form a company and, through that company structure, sign a contract with the customer.
Suggested way forward
There are many issues to be considered when setting up a business. The above information is only a guide and you should consult a lawyer for more specific advice. By pressing the “Consult a Lawyer” button, LawAdvisor can help you search for experienced lawyers and obtain fee proposals for their services. Costs for legal advice and representation will vary between providers based on experience and the scope of services.