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  • #978768
    tstorms
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    If you are running your business as a sole trader, how can you protect yourself from your business if, in a worst case scenario that someone decides to sue you because you weren’t able to deliver whatever product/service?

    Is it as simple as just having a clause in your terms and conditions to the client saying that you are not liable for xyz? Or should you consider forming a company?

    #1109388
    Kennethti
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    tstorms, post: 121645 wrote:
    If you are running your business as a sole trader, how can you protect yourself from your business if, in a worst case scenario that someone decides to sue you because you weren’t able to deliver whatever product/service?

    Is it as simple as just having a clause in your terms and conditions to the client saying that you are not liable for xyz? Or should you consider forming a company?

    Well the question in this situation will be – why aren’t you delivering the product or service? Generally if the failure to deliver the product or service is because you have failed to exercise all due care and skill, then you’ve got an issue – no court will uphold your attempt to exclude or limit your liability.

    You should read what the Australian Consumer Law has to say about consumer guarantees and limitation of liabilities.

    #1109389
    MSIC-VeritasEng
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    tstorms, post: 121645 wrote:
    If you are running your business as a sole trader, how can you protect yourself from your business if, in a worst case scenario that someone decides to sue you because you weren’t able to deliver whatever product/service?

    Is it as simple as just having a clause in your terms and conditions to the client saying that you are not liable for xyz? Or should you consider forming a company?

    My first response to anyone looking into running their own business is: Get a good accountant! Accountants can assist you in selecting the right business structure which can protect you and your assets. Lawyers can do the same but ultimately, they will need to work with your accountants once the entity is set up.

    Depending on your products/services, insurance is another good option!

    Stephen

    #1109390
    Divert To Mobile
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    To begin with I think you need a very carefull read of the new consumer laws and be sure your not about to break any.
    Then write out your terms and conditions and do a risk assessment with your legal advise to determine what your next steps should be.
    Even if you have a company as a director if you are negligent you are still personally responsible.
    Get good paid advise.

    Steve

    #1109391
    MH08
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    My advice would be this,

    Two things you need;

    • Good Solicitor
    • Good Accountant

    People who look after your business are worth there weight in gold (depending on the circumstances), it may be best to save more money before attempting to convert your current business into an corporate entity.

    Your essentially setting up a company (a proper one), so what you can do is;

    A) Setup a parent company with a family discretionary trust behind it.

    B) Then setup a unit trust and company below it.

    So essentially

    Family Company Pty Ltd is the trustee of your family discretionary trust, and then you have the shelf company, XYZ Pty Ltd (the company your selling your product through) with Unit trust behind it, which XYZ Pty Ltd is the Trustee of the Unit Trust.

    To maximise the protection here, you can the Family Company Pty Ltd be the share holder of XYZ Pty Ltd and having you as only guarantor of both Companies.

    So in doing so, XYZ Pty Ltd if its not registered for GST you can actually sell stock without paying tax (unless the stock you buy incurs GST, which everything does, unless you work for commissions), and then paying dividends to the Family Company Pty Ltd and then paying the tax at this point, but remember once you break $75k you have the register the company for Tax.

    Essentially doing this, you can make profit from XYZ Pty Ltd, pay tax, distribute dividends to the Family Company Pty Ltd, let a beneficiary pay the tax, like a child, yourself or a spouse, so theres not a heap of cash sitting in the accounts of the company incase creditors or being sued jeopardises the integrity of the company.

    The creditors and solicitors can’t sue or chase money if you have declared a beneficiary the money and they legally payed tax. Its like coles being sued, and asking all there employees for there yearly salary to pay back legal fee’s they’ve just incurred.

    Hope it helps,

    P.S
    I’m not an accountant nor solicitor, this is from my own experience through my own companies and you must always take legal advice, and follow that advice that suitable to your circumstances.

    #1109392
    Klublok
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    The creditors and solicitors can’t sue or chase money if you have declared a beneficiary the money and they legally payed tax. Its like coles being sued, and asking all there employees for there yearly salary to pay back legal fee’s they’ve just incurred.

    That’s not necessary the case. If you are looking at bankruptcy, there are provisions in the Bankruptcy Act that “claws back” any property transferred to any related entities that was not at market value within 4 years of the bankruptcy. This includes distribution from a family trust to family members.

    Coles’ employees cannot be made to pay back the wages because the employees are “third parties” who were paid for their work (ie: at market value). Different if Coles’ employees were all family members who were paid well above their market wages.

    Directors of companies can be made personally liable if the company trades whilst insolvent under the Corporations Act. Further as earlier posts suggest, consumer law would make you liable regardless of the entity that you trade under.

    Failure to deliver the goods as promised does not necessary breach consumer laws if at the time of the promise, you were in a reasonable position to deliver and that you had every intention to deliver – and the failure occurred without any faults of yours or that it was unforeseeable. But you should state that upfront in writing to your potential customers in a sales contract. Perhaps also provide a mechanism for refund.

    #1109393
    MH08
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    Thats correct in more deeper terms, but they can be hidden, and I’m not telling or advising anyone to hide assets or cash from the Government for tax evasion purposes or in the case of ‘ripping off’ customers and running with the money.

    Yes they can ‘claw back’ under new provisions as now know one is protected by the so called ‘corporate veil’.

    But you can protect yourself from structuring the companies correctly you can limit it. BUT again consumer laws can fall into place and make quick expulsion of any clauses that are in the Corporations Act. and Provisions.

    You can’t pay someone above market wages for a breadshop if your developing property through the business, they’ll catch on, this is why the business should be carefully structured and as I stated, anyone taking advice from either experienced business owner should still take advice only from professionals, ie; Solicitors and Accountants.

    Also people that are your beneficiaries or even if you pay your own spouse as the employee they can have difficulty ‘clawing it back’, this also depends on the case brought to you, as you can deem anyone a third party (there could be 15 family relatives to the owner of coles (as example).

    I have close friends that do this with there own wives in purchasing more assets, they pay the wife a wage, they can have her as beneficiary or employee of the trust/company and dividends payed to her, and she purchases assets with her market wage of positions in the company and holds all the assets in her name.

    (Won’t go so well if you divorce though…)

    This debate could go for days without having the proper understanding of there business.

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