Business Structure, Registrations and IP

The type of idea and enterprise model identified by your business plan will aid the choice of business structure. Reasons for choosing one structure over another could include protective, expansion or financial strategies. Ask your accountant and also your lawyer (if you have one) to read your plan then make recommendations. Expect them to differ, but use each to assess the arguments for one direction over the other. Some expert advice is worthwhile here.

It’s not essential to form a ‘company’, for sole traders there are simple ways to commence by doing almost nothing. If you intend to trade under your personal name, or a partnership, then you may not need to even register a business name.

Economy may be a consideration at start-up, so only formalise the business relative to progressive needs. Most business trading registrations accommodate a process of escalation quite well. Check with your state’s particular ‘registration authority’. For instance you may start as a sole trader then move on to form a company or registered business.

In general, business name registrations are state controlled, whereas incorporated bodies (companies) are federal (ASIC). There are big cost differences between business structures, both at registration and ongoing compliance. Don’t spend more than is needed to fit the purpose.

Another consideration for business structure is in what form intellectual property will be held. This comes directly from your business plan. Will there be any? Who will be creating it? Who will own it? These are issues you need to consider carefully and they should be discussed with your accountant and IP lawyer.

For instance, the business need not be the owner of the IP but a licensee instead. You, yourself may be the owner which would allow you to leave the business and still have some influence over the asset. Again this would be a strategic move and advice should be sought.

Additionally there is a protective aspect to this issue, in that it can provide some ‘total loss’ protection. Businesses come and go with surprising frequency. Sometimes failure of the business entity is not related to the validity of the idea. It may be caused by unexpected events like litigation, disputes, and changes in financial circumstances. By separating the asset from the business, if the business entity is forced into demise the asset can be withdrawn through the license agreement and live to see another incarnation.

Some spending on IP is seen as an early essential. IP could be your only asset for some time and the confounding thing about most IP procedures is if you don’t do it beforehand, you can’t do it at all. An hour or two with a senior lawyer specialising in IP would give you enough information to see how your idea can be turned into a financial asset, which can then be added to the business plan.

In many cases your lawyer should be seen as a long term advisor. Choose one that specialises in IP. Larger practices will generally have the widest experience, resources and maybe even international offices. I recommend hiring the ‘biggest guns’ you can afford. Be prepared for high cost fees so try to go progressively. Most IP procedures are based upon an escalating process so it is possible to plan reasonably well. Try to balance need with revenue, if something would be best protected but may never generate income consider the cost carefully.

The number one rule with IP generally is ‘you can’t go back’. That is, you can’t try to protect something that is already in the public domain. Once you reveal it, you lose the ability to protect it!

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