It is important to remember that an online business is still a business and the fact that it’s ‘online’ doesn’t ordinarily affect legal dilemmas such as the owners being personally sued for a business debt. Simple misunderstandings to do with business structuring can have catastrophic results for hard-working online business people such as you.
Have you considered who the owner of your online business actually is? Have a think about the following key questions which may either set off some alarm bells for you or help you sleep better at night:
Online Business Bank Account
If your online store takes payment to a bank account held in your personal name, whether connected through PayPal or not, chances are your online business is actually you, an individual, with a trading name. In business structuring lingo, this set-up would be referred to as a ‘sole proprietorship’, and in most situations this is the worst possible way to protect your assets from the dangers associated with litigation.
Registration of Domains
Another question to ask yourself is to whom are your domain names registered? Locating the registrant of a domain name is a straight forward process and if the registrant is you personally this may give rise to any legal action being launched against you, even if a company or another legal entity is the owner of the business. For this reason it is important to make sure your domains are registered to the correct entity – usually the owner of the business itself (e.g. a company or a trustee on behalf of a trust).
Business Names
If your online business operates in Australia you are required to register a business name with the Australian Securities & Investments Commission (ASIC) and by and large online business owners understand this and play by the rules. The issue arises, however, when the actual legal owner of the business is not registered correctly behind the business name.
For example, if your online business is trading with the business name “Online Legal Advice” and it is owned by “Online Legal Advisers Pty Ltd”, it is important that this is registered with ASIC correctly. In far too many situations the owner of the business name is identified as the individual (a director of the company) rather than the intended company, eg “Ben Hall” being registered as the owner rather than “Online Legal Advisers Pty Ltd”.
If a creditor is keen on recovering some money from the business and does a search through ASIC to identify the owner of the business name, they will see an individual rather than the company and the painful reality of legal proceedings will ensue for that individual person when it should have been against a company, which is a separate legal entity to the person.
Accountants -v- Lawyers
Lawyers cannot and do not give financial or accounting advice, but we do advise on legal risk including formulating a business structure to protect your assets. Unfortunately many business owners allow their accountant to structure their business, which is great for tax purposes but terrible for legal risk mitigation. Accountants are barred from providing legal advice, but in many situations they do (either intentionally or accidentally, but with the best of intentions for their clients).
Given that accountants are not legally permitted, nor qualified to turn their minds to legal risk for your online business, ensure that when you are setting up your online store you seek the advice of a solicitor as well as an accountant.
If you would like more detailed advice about your own online business, contact us to find out more.