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How to effectively establish a consultancy business in the mining and resources sector – part 1

Author: Craig Hong
3 min read
03 June 2019

Key Takeaways

  • Eight key steps consultants should consider when setting up a business within the mining and resources sector
  • How to minimise risk and protect your assets
  • What entity should you use to set up your business – for today and tomorrow.

A mining and resources consultancy business can be relatively simple to establish: it can be done with no employees, no stock, limited equipment and perhaps no premises if you work from home.
On the other hand, a consultancy business may not start small and/or may grow quickly.
Whatever your circumstances when setting up your own consultancy, there are a number of important issues which must be carefully considered.

1. Business entity:

Most consultancy businesses would use one of the following entities:

  • Sole trader
  • Partnership
  • Company
  • Trust

A company can trade in its own right or as a trustee of a trust. To get the benefits of limited liability, the company can be used either itself or as trustee of a trust.
There are two types of trust, being a family trust and a unit trust. Beneficiaries of a family trust do not have a fixed entitlement, whereas the beneficiaries of a unit trust are the unitholders and have a fixed entitlement. The appropriate trust structure will depend on various circumstances which will be the subject of future articles.

2. Stakeholder Agreements:

Stakeholders in a business are those with a financial interest being the sole trader, or the partners in a partnership, or the shareholders in a company, or the beneficiaries (or unitholders) in a trust. Usually if there is more than one stakeholder it will be necessary to have an agreement (partnership agreement, shareholders agreement or unitholders agreement) between those stakeholders.

3. Asset protection and tax minimisation:

The different types of entity referred to above offer various combinations of:

  • Simplicity or complexity
  • Asset protection or asset risk
  • Tax minimisation or not
  • Cost of operating structure

In deciding on a structure you will need to take legal and accounting advice to weigh up the costs and benefits of the various entities.

4. Funding:

Funding can be by way of equity (contribution by stakeholders) or loans from stakeholders or related parties or loans from financial institutions. The appropriate funding mix will depend on various factors. You will need to take legal and accounting advice to determine this.

5. Employment law issues:

If you have employees, you should have written agreements with those employees. You should take legal advice regarding this. You should also be aware of basic employment law rules.

6. Insurance:

Three main types of insurance you should consider are:

  1. Professional Indemnity
  2. Equipment
  3. Public liability

You should take advice from either (or all of) your lawyer, accountant and insurance broker.

7. Client agreements:

To charge your clients for work done you will need client agreements which should (at least) also address the following issues:

  • GST
  • Intellectual property protection
  • Confidentiality
  • Limit of liability
  • Payment terms
  • Scope of work and timing of work

8. Premises:

If you are leasing premises, you should not enter a lease without legal advice, as the obligations under a lease can extend over a long period and be very onerous, particularly if you wish to cease or downsize the business.

9. Other issues:

The above issues are the most common ones you would need to deal with. Other issues that may be relevant are software licensing, agreements with suppliers, requirements to join professional organisations and specific issues that may relate to your business.
To find out more about asset protection and tax minimisation; funding; and employment law, please view part two of this story.

Craig Hong and Ian Hillhouse are regular contributors for the leading mining and resources publication Resources Unearthed. They regularly provide advice across a spectrum of often complex legal matters within this sector.

Click here to read the original article in full.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.

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