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You’ve probably heard the term ‘side hustle’ or even ‘moonlighting’. Both terms refer to a job that’s in addition to your regular employment. In fact, it’s not uncommon for people to have an extra stream of income or two.
But what about starting your own company when you’re already working for one?
Starting your own company is different from having a second job or taking extra shifts on the weekends. This time, you’ll be running a company while working for another one.
Is this even legal?
The answer isn’t actually a straightforward yes or no. Whether or not you can start a company while working for another one depends on a number of different factors.
Let’s take a look at some of these issues and consider what you may need to think about when starting your own company, while working for a different one.
Can I Own A Business While Working For Another Company?
There isn’t any definitive law that says you can’t be employed by a different company when you decide to start your own. Plenty of founders choose to start their company while working at their regular job.
However, there’s a couple of things you need to think about before getting started on your journey as an entrepreneur. We’ve listed some main ones below.
Conflict Of Interest
Prior to starting your own company, think about whether or not your current business will be in conflicting interest with your current employer. For example, if you work at a software company, then starting your own company that specialises in the exact same niche of software is likely going to be a conflict of interest.
Employment Contract
Your employment contract may also have the information you need. If your employer has any rules regarding additional work opportunities, there’s a good chance you’ll find it in there. Have a thorough read of your employment contract and act accordingly, the last thing you want is to be in breach of your contract.
Company Policies
It’s also a wise idea to take a look at any company policies your current workplace may have. As an employee, you’re not just bound to your employment agreement. Internal workplace policies that govern the company you work for will also determine the kind of action you’re able or unable to take.
Non-Compete Clauses
A non-compete clause is one of the main clauses you need to look out for when scanning the relevant documentation. This is usually found in employment agreements and will let you know what kind of business activities can be considered appropriate for you to engage in outside of work.
Notifying Your Employer
You’ll also need to think about letting your employer know about your plans to start a new company. We recommend having this conversation as it addresses any issues that might not have been mentioned in the documents you read. Also, having open communication with your employer can serve to clear things on your end, which is always a plus.
Industry Specific Regulations
As we noted above, there isn’t a specific law that prevents employees from starting their own company. However, that doesn’t mean there aren’t industry specific regulations, common law principles or even local laws you need to look out for. Your individual circumstances will determine a lot about the kind of regulations that might apply, so it’s a good idea to do your due diligence before your next move.
We get it, keeping up with laws and regulations can be a headache. If you’re unsure about where to look, you can always talk to a Regulatory Compliance expert. They can break down all the legal jargon so you don’t have to and get straight to the point.
Are There Any Other Legal Considerations To Look Out For?
Yes, starting your own company while still being employed by a different one can be pretty tricky terrain if you are not careful. Even though the two things might be completely separate, there’s still a few more legal factors you need to be aware of.
For instance, Intellectual Property (IP) can cause some issues if you’re not careful. When navigating between two companies, it’s important that you don’t accidentally (or deliberately) infringe on the intellectual property rights of your employer.
As IP can be many different things, it can be easy to get confused and do this by accident. When you start your own company, ensure everything you have is from scratch. If not, make sure you have the correct Licence to use whatever isn’t originally yours. Sometimes, it’s easy to get carried away and forget which resources belong to who, so you’ll just have to be extra cautious.
Tax obligations are another thing you’ll need to look out for. As both an employee and a company owner, you’ll need to make sure you fulfil your tax duties for both occupations. As an employee, your employer most likely tax care of most of the tax related stuff.
However, when you run your own company where you might have employees working for you, the role will be reversed. As such, it’s crucial you take the time to understand what your tax obligations are as the owner of a company and abide by them – getting in trouble with the Australian Taxation Office (ATO) is never fun.
So, How Do I Start A Company?
After you’ve taken the time to make sure it’s alright for you to start your own company, while working for another one, then it’s time to begin the process of bringing your company to life!
So, where do you start?
When you start a company, you need to get a couple of things in order. Sorting out shareholders, directors and company governance will be at the top of your priority list. Then, you’ll need to register your company with the Australian Securities and Investments Commission (ASIC). This is also a good time to understand your ongoing obligations with ASIC, as the owner of a brand new company. ASIC is the main regulatory body for companies in Australia. You’ll need to notify them of any company changes, pay fees and conduct annual audits as part of their rules.
A legal expert can help get your Company Set Up and talk you through your obligations, that way you’ll understand exactly what’s to come and be prepared for it.
If you want more details on the process of starting a company, we’ve written more about it in Steps To incorporate Your Small Business In Australia.
What Is The Difference Between Starting A Company And Starting A Business?
At times, the terms a company and business are used conversely, however it’s important to distinguish between the two as they are very different.
A company, as we discussed above, is registered with ASIC. It is a legal entity on its own. Due to its legal status, a company is able to do things that a legal person would be also able to. A company can own property, earn a profit and even work up debt. Its legal separation from you personally means your liability is limited, offering you a lot more legal protection.
A business on the other hand, is very different to a company. Businesses don’t need to go through ASIC to get registered. They simply need to attain an Australian Business Number (ABN) through the Australian Business Register, which can be done online. Once an ABN application is approved, an individual can start working as a sole trader. If the business is being started with a partner, then both partners will need to get their ABN’s (it’s also a good idea to get a Partnership Agreement drafted).
The process for getting started as a sole trader is evidently much easier. However, the downside to a sole trader or partnership is business is the limited legal protection. A business is not legally separate from you. Rather, it’s connected to you personally. Therefore, if something goes wrong with the business, then you will likely be impacted by this personally.
So, even though the setup process for a company is somewhat more complex and time consuming, we always recommend a company structure for all serious business ventures.
Next Steps
Starting your own company is always an exciting new chapter. However, if you’re still working for another company, then make sure you’re in the clear to go ahead. To summarise what we’ve discussed:
- It’s not uncommon for people to have a ‘side hustle’ like starting their own company, while working for someone else
- The legality of this depends on various factors; no definitive law prohibits it, but considerations include conflicts of interest, employment contracts and company policies
- Non-compete clauses in employment agreements may restrict certain business activities outside of work
- It’s a good idea to notify your employer about plans to start a new company for transparency and conflict resolution
- Industry-specific regulations and other legal considerations, such as intellectual property and tax obligations, should be thoroughly understood
- Starting a company involves sorting out shareholders, directors and governance, registering with ASIC, along with fulfilling ongoing obligations
- The difference between a company and a business lies in legal registration: a company is registered with ASIC, while a business needs an ABN and lacks legal separation from the owner
If you would like a consultation on starting a company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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