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Structuring your start-up – Tips &

Traps

Disclaimer: The information contained in this document represents general comments and is provided for information purposesonly. It is intended as a guide only and does not represent advice on any particular matter. No warranty or representation is givenin respect to its content. Accordingly no responsibility is taken by Vincents Chartered Accountants or any member, representativeor affiliate of the firm, for any loss suffered by any party as a result of actions taken based on this information. To enable fullyinformed decisions, we recommend parties seek professional advice specific to their particular circumstances.

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Who am I?

� Steven Roberts

� Supervisor at Vincents Chartered Accountants

� 10 years in Business Services

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� 10 years in Business Services

� R & D Tax Incentive Specialist

� Innovation and Commercialisation Grants

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Which Structure - A key decision!

� Business or a Hobby?

� One size does not fit all

� Which legal structure

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� Which legal structure

� Pro’s and Con’s of each entity

� Change with growth

� Flexible

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Considerations

� Control

� Asset Protection & Liability

� Commercialisation

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� Commercialisation

� Funding

� Tax

� Access to Government Grants

� Cost

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Considerations - Control

� Who control’s the entity

� Through growth and adding investors

� Responsibilities

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� Responsibilities

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Considerations – Asset Protection &

Liability� Personal Assets

� Family Assets

� Personal Liability

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� Personal Liability

� Structure Protection vs. Responsibilities

� Joint & Several Liability

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Considerations – Commercialisation

� Perpetuity

� Family Business?

� Multinational?

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� Multinational?

� Dissolution or Exit

� Changing Structure

� Short vs. Long Term

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Considerations – Funding

� Initial investment

� External investors

� Passive, Active and Silent investors

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� Passive, Active and Silent investors

� Grants

� Balance work needed to prove concept vs. what

needs to be done to attract investors

� Combination of entities to achieve funding

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Considerations - Tax

� Tax Rates

� Losses

� Distribution of Profits

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� Distribution of Profits

� Capital Gains Tax

� GST

� Hobbies/Non-Commercial Loss

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Considerations – Access to Government

Grants� R & D Tax Incentive

� Local Government Grants

� State Government Grants

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� State Government Grants

� Federal Government Grants

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Considerations - Cost

� Setup

� On-going costs

� Reporting Requirements

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� Reporting Requirements

� Registrations

� Cost of getting it wrong

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Common Entities

� Sole Trader

� Partnership

� Company

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� Company

� Trusts

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Sole Trader

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Sole Trader

Control 100%

Asset Protection Zero asset protection and 100% liability

Commercialisation Business ceases with the sole trader

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Commercialisation Business ceases with the sole trader

Funding Very difficult = interest costs

Tax Difficult to tax plan, marginal tax rates, losses, CGT

Government

Grants

No R&D, limited access Government grants

Cost Simple and cheap to setup and maintain

Partnership

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Partnership

Control Shared amongst partners

Asset Protection Zero asset protection and % liability – not separate legal entity

Commercialisation Partnership ceases with entry or exit of partner

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Commercialisation Partnership ceases with entry or exit of partner

Funding Difficult

Tax Difficult to tax plan, marginal tax rates, losses, CGT

Government

Grants

No R&D, limited access Government grants

Cost Simple and cheap to setup and maintain

Company

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Company

Control Ultimately shareholders. Day-to-day directors (Fiduciary duties).

Same person may be both, make sure you know what hat you have on.

75% vs. 50% decisions.

Asset Protection Maximum – separate legal entity

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Commercialisation Easy with issuing shares and classes of shares, perpetual

Funding Simple, need to adhere to corporations act (unsophisticated investors).

Tax 30% tax rate, losses, CGT discount, franking credits

Government

Grants

Access to R&D, access to Government grants

Cost Reasonably expensive

Trusts

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Trusts

Control Ultimately appointer. Day-to-day trustee

Asset Protection Limited to assets of trustee

Commercialisation Family orientated

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Commercialisation Family orientated

Funding Difficult due to discretionary distribution of profits

Be aware of outstanding loans (incl UPE)

Tax Split income, tax rates of beneficiaries, losses, CGT, traps to distribute

income (flow through vehicle)

Government

Grants

No access to R&D, limited access to Government grants

Cost Reasonably expensive

Other Entities/Variations

� Partnership of Trust’s

� Pty Ltd vs. Ltd Companies

� Joint Ventures

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� Joint Ventures

� Discretionary Trust

� Unit Trust or Hybrid Trusts

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Things that can go wrong

� Appreciating assets in company

� Family trust with external beneficiaries

� Timing – expenditure as sole trader

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� Timing – expenditure as sole trader

� IP in separate entity

� Continuous partnership dissolutions and

reformation

� Individual trustee

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forensic accounting | forensic technology | insolvency & reconstruction | audit & corporate advisory | taxation & business solutions | financial advisory | recruitment solutions © VINCENTS

Steven Roberts – Supervisor

sroberts@vincents.com.au

Direct Line: 07 3228 4068

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