The legal decisions you make in the early days of a business have consequences that last for years. Here is what every NSW founder needs to know before they start trading.

Key Takeaways

  • Choosing the right business structure from the start affects your tax, liability, and flexibility as the business grows.
  • Operating under the wrong structure, or with no formal agreement in place, can create serious problems with co-founders, investors, and the ATO.
  • Protecting your brand through trademark registration is straightforward and far less expensive than a dispute over IP you failed to register.
  • Employment law applies from the moment you have staff. Getting contracts and entitlements right early prevents costly claims later.
  • A legal setup checklist can help you identify what’s done, what’s missing, and what to prioritise.

Starting a business is absorbing. There is a product to refine, customers to find, and a hundred operational details to manage before you have made a single sale. Legal setup tends to get pushed down the list, and that is understandable. It is also a mistake that costs some founders a great deal of money to fix later.

The legal framework you put in place at the start determines how you are taxed, how much of your personal wealth is at risk if the business struggles, whether your intellectual property is protected, and what happens if a co-founder relationship breaks down. Getting these things right from the beginning is far less expensive than unravelling a structure that no longer fits the business you have built.

This article covers the essentials. It is not exhaustive, and the right answers will vary depending on your circumstances, but it puts you in a position to have a proper conversation with a lawyer before you commit.

1. Choose the right business structure

This is the most consequential early decision, and the one most often made without adequate advice. The four main structures used for small businesses in NSW are:

  1. Sole trader. Simple and low-cost to establish. You operate as an individual, which means there is no separation between you and the business. Any debts the business incurs are your personal debts, and you are taxed on all business income at your marginal individual rate.
  2. Partnership. Two or more individuals operate together and share profits, losses, and liability. A partnership agreement is essential. Without one, the Partnership Act 1892 (NSW) fills the gaps, and its default terms may not reflect what you have agreed.
  3. Company. A separate legal entity with its own rights and obligations. Shareholders are generally protected from personal liability beyond their investment. Companies pay a flat rate of company tax rather than individual marginal rates. There are additional compliance obligations, including ASIC registration and annual reviews.
  4. Trust. A trustee holds and manages assets on behalf of beneficiaries. Trusts are commonly used in family business structures to manage income distribution and protect assets. They involve ongoing obligations and are generally more complex to administer.

Many sole traders and early-stage founders operate without a company structure and find it works well. Others discover too late that their personal assets, including their home, were at risk throughout. The right choice depends on your risk profile, growth plans, and the nature of the business itself. It is worth taking legal advice before you commit.

2. Register your business properly

Regardless of structure, there are baseline registration requirements for operating a business in NSW:

  • Australian Business Number (ABN). You need an ABN to invoice clients, register for GST, and operate as a recognised business entity. Apply through the Australian Business Register.
  • Business name registration. If you operate under a name that is not your own legal name (for a sole trader) or the company name (for a company), you must register the business name with ASIC. Registration does not give you exclusive rights to the name, but it is a legal requirement.
  • GST registration. If your annual turnover is $75,000 or more (or $150,000 for non-profit organisations), you must register for GST. You may choose to register earlier.
  • Company registration. If you are incorporating, ASIC registration is required. You will receive an Australian Company Number (ACN), which must appear on all company documents.

Depending on your industry, you may also require specific licences or permits at the state or local government level. Construction, food service, childcare, and financial services are among the sectors with specific requirements. Operating without the necessary licences exposes you to penalties and, in some cases, personal liability.

3. Get your co-founder agreement in writing

If you are starting the business with another person, a formal agreement between you is not optional. Even if you trust each other completely, the agreement matters because circumstances change: one founder may want to exit, a relationship may deteriorate, or you may simply disagree about the direction of the business.

A shareholders’ agreement (for a company) or partnership agreement (for a partnership) should cover, at minimum:

  • Each founder’s ownership percentage
  • How decisions are made, and which decisions require unanimous agreement
  • What happens if a founder wants to sell their shares or exit the business
  • What happens if a founder dies or becomes incapacitated
  • Vesting schedules, if applicable, so that equity is earned over time rather than granted upfront
  • How disputes between founders will be resolved

These conversations are easier to have at the beginning of a business relationship than at the point of a dispute. A well-drafted agreement also signals to future investors and lenders that the business is properly structured.

4. Protect your intellectual property

Your brand and your product may be the most valuable things your business owns. Australian IP law gives you some automatic protections, but relying on them alone is a risk.

Trademark registration through IP Australia gives you exclusive rights to use your brand name, logo, or slogan in relation to your goods or services in Australia. Without registration, a competitor can register a similar mark and require you to rebrand. Trademark registration is not expensive relative to the cost of a dispute, and it should be done early, before you invest heavily in a brand identity.

Copyright in original work (written content, software code, designs, and similar) arises automatically and does not require registration in Australia. However, ownership of copyright is not always clear when third parties are involved. If you engage a freelancer or contractor to create content, code, or designs for your business, you should ensure the contract explicitly assigns copyright to you. Without an assignment clause, the creator retains the copyright even if you have paid for the work.

Patents and design rights may be relevant depending on what your business produces. These involve separate registration processes and specialist advice.

5. Understand your employment obligations from day one

The moment you engage an employee, you take on a set of legal obligations under the Fair Work Act 2009 and relevant modern awards. These include:

  • Providing a written employment contract that covers the essential terms of employment
  • Paying at least the minimum wage and any applicable award entitlements
  • Paying superannuation contributions on time (currently 11.5% of ordinary time earnings for eligible employees)
  • Providing a Fair Work Information Statement and, for casual employees, a Casual Employment Information Statement
  • Complying with leave entitlements, including annual leave, personal leave, and parental leave

Misclassifying employees as contractors is a common and costly mistake. The ATO and Fair Work Australia apply a multi-factor test to determine the true nature of the working relationship, and the consequences of getting this wrong include back payment of entitlements, penalties, and superannuation liability. If you are unsure whether someone is an employee or contractor, take advice before you formalise the arrangement.

6. Get the right contracts in place

Trading without adequate contracts exposes your business to disputes and losses that could have been prevented. The key agreements most small businesses need include:

  • Client or customer terms of engagement, covering scope of work, payment terms, liability limitations, and dispute resolution
  • Supplier agreements, to govern what you are receiving, at what price, and on what terms
  • Non-disclosure agreements (NDAs), where you are sharing confidential information with third parties, including potential investors or partners
  • Contractor agreements, which clearly document the nature of the relationship and include IP assignment clauses

Standard contracts downloaded from the internet may not be appropriate for your business, may not comply with NSW law, and may expose you to terms you have not considered. We recommend having any contract reviewed by a professional before you rely on it.

Working with & Legal

& Legal works with founders and small business owners across New South Wales on business structuring, shareholder and partnership agreements, contracts, and ongoing commercial advice. Legal costs matter for any early-stage business. We focus on what needs to be done at your current stage, and we will tell you plainly if something can wait.

We also provide a legal setup checklist for NSW founders, which you can use alongside this article to identify what is in place and what needs attention.

Download your checklist here

To discuss your situation with one of our team, you can contact us here.

Frequently asked questions

Do I need a company, or can I operate as a sole trader?

That depends on several factors: the nature of the business, your risk exposure, your growth plans, and how you want to be taxed. Many small businesses operate successfully as sole traders, especially in the early years. Others find that incorporating provides important protections. The right answer is specific to your circumstances, and a conversation with a lawyer and accountant together is usually the most efficient way to reach it.

What happens if I don’t have a shareholders’ agreement?

If you operate a company without a shareholders’ agreement, the Corporations Act 2001 (Cth), the company’s constitution (if it has one) and complex legal precedent will govern the relationship between shareholders. The default rules may not align with what you and your co-founders have agreed informally. Disputes between founders without a formal agreement are among the most difficult and expensive legal matters a small business can face.

How much does it cost to register a trademark in Australia?

The base cost of a trademark application through IP Australia starts at approximately $250 per class of goods or services. Most small businesses cover one or two classes. The process involves an examination period followed by an advertising period and then registration. Legal costs depend on whether you engage a trademark lawyer to conduct a clearance search and prepare the application, which is advisable given that a poorly prepared application can be refused or challenged.

What is the difference between an employee and a contractor?

The distinction is determined by the nature of the working relationship, not by what you call it or what the contract says. Relevant factors include: whether the person is integrated into your business or operates independently, whether they can subcontract the work, whether they supply their own equipment, and whether they bear financial risk in the engagement. The ATO and Fair Work Australia can both investigate and make findings on this issue. If you are unsure, take advice before you commit to a structure.

Do I need terms and conditions if I mostly deal with businesses rather than consumers?

Yes. Australian Consumer Law protections apply primarily to consumer transactions, but business-to-business contracts cannot be informal either. Many disputes between businesses come down to unclear scope, undefined payment terms, or absent liability clauses. Even a simple service agreement benefits from being written down properly, especially for higher-value work or ongoing client relationships.