Contents
There are currently more than 2.5 million active businesses in the Australian economy, with many of those businesses being classified as a small business.
Small businesses substantially contribute to the Australian economy and employment opportunities.
So, what really is a small business?
In this article, we’ll break this down.
Small Businesses And Startups
Well- known companies that began as a startup include Facebook, Airbnb and Lyft.
Often, small businesses and startups get confused with one another. Even though neither of them are big, established companies, the alternatives are not all the same. Small businesses and startups are actually pretty different from one another.
Startups are focused on large, quick growth and disrupting the market they are in. However, it also means they’ll need to work hard to do so as they’re starting from scratch.. As such, startups often look to investors to fund their initial endeavours and expect to grow from there (this is only one of the options when it comes to funding your business).
Small businesses, on the other hand, usually have less risk compared to startups. They don’t need to make a large plan for growth, but rather, find stability and consistency in order to keep going. This doesn’t mean to say a small business cannot grow (it certainly can!). However, not under the same ‘go big or go home’ pressure startups tend to have.
What Is The Definition Of A Small Business In Australia?
In Australia, small businesses are defined in multiple ways. This is because different sectors have varied accounts of what it means to be a small business. Generally, you can consider yourself to be a small business if you tick off any one of these points:
- The Australian Bureau of Statistics (ABS) defines a small business as an organisation that employees less than 20 people
- According to the Australian Securities and Investments Commission (ASIC), a small company is one that has an annual turnover of less than $25 million, no more than 50 employees and under $12.5 million in assets
- The Australian Taxation Office (ATO) considers a business with an annual turnover accumulating less than $10 million to be a small business
How Many Employees In A Small Business Australia
As you can see from what we noted above, whether a business can be considered small or not is generally established by two main factors.
The first is how much the business earns in a year (or how much the business is worth). The second factor is how many people the business employs.
If your business has chosen the company structure, it will need to have less than 50 employees to be considered small. For all other business types, ABS has stated there must be less than 20 employees in order to be recognised as a small business.
How To Start A Small Business In Australia
Starting a small business is an exciting new opportunity, whether you are following passion or looking to earn some extra cash.
Your initial steps when bringing your business idea to life are crucial. It will lay the foundations for your business and play a key role in determining your future success.
It’s best to start with a Business Plan, which will act like the blueprint for your business journey. It should outline your goals, the resources you need and deadlines for you to ensure you stay on track.
Once you have taken care of registering your business, it’s important to look into getting all the right legal documents in place so your business can be both protected and legally compliant.
Key Legal Documents For A Small Business
Legal documents can help in making sure things run smoothly, everyone is on the same page, and you are meeting all your legal obligations. That’s why it’s important to get the right ones drafted so you can focus on running the business!
We’ve listed some key ones for you to think about below.
Employment Agreements
When you are hiring someone to work for you, it’s really important to have a written agreement between the two of you. As an employer, you have certain duties towards your employees you need to fulfil and employees have the same towards the business.
An Employment Agreement is a great way to make sure everyone is clear on what they can expect from one another. The contract can be catered to meet your individual needs. However most Employment Agreement should cover the following key matters:
- Pay rates
- Working days and hours
- Leave and other entitlements
- A description of the role and duties
- Termination
- Confidentiality
- Dispute resolution process
Supply Agreements
Supply Agreements are legally binding contracts between you and your supplier covering important matters such as what products are to be delivered, time of delivery, payment and warranties.
We highly discourage only having a verbal agreement with your supplier. If something does happen to go wrong, it’ll be much easier for both parties to refer to the written agreement to follow a smooth dispute resolution process and ensure it is handled fairly.
Having a Supply Agreement is particularly important if you’re working with overseas suppliers as you’ll need to ensure your agreement is internationally enforceable.
Non-Disclosure Agreements
Nobody wants the private information of their business getting out to the public. This could seriously impact your relationships and how you handle competition.
When trusting another individual with your business’s private, internal information such as a potential investor or a contractor, a Non-Disclosure Agreement (NDA) can help you protect your business. The agreement lets the other party know that they cannot discuss certain matters with unauthorised third parties.
These are particularly useful for trade secrets or for protecting IP.
| Example Bob is starting his own restaurant and needs investors. So far, he’s registered his business and sorted out his menu. Before his meeting with potential investor Sam, Bob has Sam sign an NDA so they don’t reveal any information about Bob’s business, especially the menu he has spent countless hours perfecting. This way, Bob can be assured no potential imitators will use his ideas before he’s had a chance to debut them. |
Starting An Online Small Business
Chances are you’ve established an online presence for your business. This is a great way to boost your visibility and reach. Having a website or social media page can be really helpful in marketing as well as making your business more accessible to others. However, operating online presents additional risks and liabilities which you need to prepare for.
It’s useful to have Website Terms and Conditions so you can regulate activity on your website. If a user violates these terms, then you have the ability to take necessary steps to rectify the damage that may have been caused or simply prevent it from happening again (such as banning a specific user).
Having Web T&Cs can help in lessening your liability and managing some of the risks that come with being online.
Privacy Obligations For Small Businesses
When your business is online, privacy obligations are another key legal responsibility small businesses need to be aware of. Something you need to be aware of are the laws surrounding the information you might be collecting from your users through your business website.
According to the Australian Privacy Principles (APPs) and the Privacy Act 1988, all businesses that collect the personal information of their users need to have a Privacy Policy in place.
This rule was previously used for businesses that had an annual turnover of more than $3 million (and still does apply to them). However, it has since been updated to include every business that collects any kind of personal information.
If the Privacy Act applies to you, you are required to have a Privacy Policy in place.
Personal information is anything that can be used to reveal the identity of another person. Therefore, even if you are only getting your users emails in order to send them occasional updates, you are legally required to have a Privacy Policy on your website that lets people know what information you are collecting from them and what you plan on doing with that information.
How Small Businesses Get Funding
There are a number of options when it comes to funding a small business. Ultimately, the way you fund your business will depend on your circumstances and the options you have available to you. Common ways to get funding for small businesses include:
- Taking out bank or personal loans
- Using your own money
- Crowdfunding
- Investors
- Grants
Each option has its own benefits and risks. We recommend writing up a business plan and making a detailed budget. Be sure to leave room for any unexpected expenses as well to see how much it will take to launch your venture.
Tax Obligations For Small Businesses
You will also need to think about paying tax as a small business. The taxes you will be required to pay are determined by your business operations, how much your annual turnover rate is and a number of other factors.
For example, if your business has an annual turnover rate of more than $75,000, you will likely need to start paying Goods and Services Tax (GST). You can learn more about business taxes here.
When you go to register your business, you can apply for taxes there. Otherwise, it can be done separately.
What Small Businesses Need To Know About ASIC
The Australian Securities and Investments commission (ASIC) is the main regulatory body for financial services and companies, although small businesses also need to pay attention to their obligations under ASIC.
When you register your business, you will do so through ASIC.
If you are registering a company, your registration, reporting and annual auditing will also need to be done through ASIC (so you will be interacting with them a fair amount!).
Following your obligations under ASIC is extremely important if you want to keep your business legal compliant and avoid paying fines.
Key Takeaways
Small businesses are defined by their income and size, however, the exact definition may vary based on taxes and legal obligations. In any case, like every business, to start a small business you need to make sure you have all your business legals sorted.
To summarise what we’ve discussed:
- A small business (depending on the structure) has less than a specific amount of employees as well as a turnover rate that doesn’t exceed the minimum required to be counted as a small business
- Small businesses and startups are very different from one another
- If you are thinking of starting a small business, make sure you have the right legal documents in place
- Online businesses will need additional legal protection through documents such as an online terms and conditions
- Make sure you fulfil your privacy obligations
- Think about how you will fund your business and the relevant taxes that will apply
- Familiarise yourself with ASIC, as you will have a relationship with them to some degree
Need A Small Business Lawyer?
When you’re looking for a legal professional to help with starting your small business, it helps to have someone that specifically understands small businesses from other business types.
Our expert lawyers work with small businesses everyday and are well aware of their concerns, questions and requirements. Reach out to talk to one of our expert small business lawyers.
If you would like a consultation on your obligations as a small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
Get in touch now!
We'll get back to you within 1 business day.
Top 3 Legal Mistakes
Book in a free consultation with us to discuss your legal needs.