This article outlines some critical legal issues that you must consider if you are taking your business online. If you are reading this article from the perspective of an established business, skim sections 1 – 2, but be sure to read sections 3 – 7 carefully. If you started your online business recently or are looking to begin soon, all of the sections below are very important.
1. CHOICE OF ENTITY AND ESTABLISHMENT
The most common business vehicle that entrepreneurs choose in Australia is the company. The biggest benefit of incorporating is “limited liability”. By incorporating, the shareholders in the company limit their personal liability for mistakes that the company (or its directors) make, to the money invested to buy shares in the company (this immunity is limited in some special circumstances). Usually, a startup sells shares to the founders for a nominal sum. For example, if a founder pays $20 for twenty shares in a company, that’s all the money he or she stands to lose if the company gets into trouble. We note that most founders also fund their companies by lending it money for working capital and other expenses. If you operate a website as an individual, without the “corporate veil”, all of your personal assets are at stake because there is no limited liability protection. If something goes wrong with your website, and someone sues you, every one of your assets (home, car etc.) will be on the line, and you risk bankruptcy. The way that you structure the ownership of the shareholding in your company also matters. There can be significant asset protection and tax benefits derived from holding shares through a trust. Structuring arrangements are highly variable depending on individual circumstances, so you should ensure that your lawyer considers this on your behalf.
- Consider which entity will operate the website.
- Carefully consider how you will own shares in that entity.