If you’re considering making the shift from executive to consultant, review your employment contract first for any restraint, non-solicitation or IP clauses that might restrict who you can work with and what you can do after you leave. If you have ideas of working with a few close clients or using IP developed on your employer’s time, you might need to think again.
In this article, I cover asset protection, the need for written agreements and why it makes sense to establish your estate plan at the same time you establish your consultancy business.
Asset Protection
Legal claims often come without warning, and they usually take aim at the directors as well as the company.
It’s for this reason, personal assets such as the family home should, if possible and practicable, be held in the name of your spouse or others who have no legal or financial responsibility to the business.
Other assets including rental properties, shares and superannuation as well as business assets that may include IP also need to be protected from unwelcome and unwarranted claims.
Written Agreements
In my experience, clearly articulated written agreements are essential for every business. It won’t matter how long you’ve known a client or prospective business partner, should a relationship sour, a handshake agreement simply won’t hold water
A templated boilerplate agreement (prepared by a lawyer) that covers all the standard and required clauses will sometimes suffice for straight forward ‘bread ‘n butter’ type assignments.
However, for more valuable and complex contracts that involve longer completion time frames bespoke contracts with carefully worded and clear legal clauses are a necessity.
Similarly, partnership or shareholder agreements need to be carefully drafted. Documents of this nature that set out obligations, responsibilities and ultimately exit clauses are often a grudge purchase when funds are tight and time is short, but believe me, they are worth the effort when the chips are down.
Employees:
For some executives turned consultant, the goal is simply to enjoy the freedom of working solo without the burden of managing staff. For others, a workforce able to meet the demand for your specialised services, will follow soon after.
When it comes to employees, properly prepared employment contracts are again a necessity.
Your employee agreements must comply with Award and Fair Work obligations, and among a raft of other matters must include a clear termination clause. If you offer incentives or bonuses, all must be articulated to ensure the employee understands the conditions of achieving the entitlement which will protect your interests as well.
Further, especially for specialised fields of work, your employment contracts should protect your IP, at the very least a confidential information clause, while a non-solicitation clause will help protect your client base.
It is also important to carefully consider whether those working for you are contractors or employees.
For start-ups there’s a temptation to engage contractors rather than make a commitment to employees on the premise of avoiding the obligation of managing their tax, super and other entitlements.
However, contractors who behave like employees are very likely to be entitled to those benefits anyway. Unfortunately, the first you’ll know of it will be when they fail to pay their tax bill and the ATO comes knocking on your door asking for unpaid back-tax and super or if they get hurt, they’ll sue you.
Estate Planning:
Whether you are an employee or self-employed, everyone should have a will and estate plan. As a business owner your affairs are inherently more complicated and should you pass away or become incapacitated and unable to make decisions, plans need to be in place for others to deal with your business and personal affairs.
Without a will, you will die intestate which means your estate will be distributed according to strict rules which may not be what you want. Your family and business partners will likely have little or no say in your affairs.
You will need current Powers of Attorney for decision making on your behalf and your binding nominations should be up to date. Failing to update binding nominations for insurance policies or superannuation payments, could mean any legal entitlements to lump sum payouts could end up with unintended beneficiaries such as an ex-but not yet divorced-spouse.
You’ll need an estate plan in addition to a will. This is because some of your assets will fall outside the scope of your will, such as those held in trust or your superannuation.
Establishing your estate plan at the time you establish your consultancy has merit as death or severe disablement can happen suddenly and without warning. A will and estate plan, in alignment with other measures including insurances and a buy-sell agreement between business partners, that can be invoked when certain ‘trigger events’ including death and disability occur, are all important considerations.
Next steps
Get advice before you take the plunge and become a consultant. Establish an advice team that, at the very least includes legal, tax and personal financial planning. Ideally, these professionals will be experts, not just in their discipline but in the peculiarities often associated with the mining and resources sector, known to one another and willing to work cohesively in your best interests.
If not, contact Resources Unearthed for a discussion. Working collaboratively with mining and resources executives, professionals and business owners to provide seamless solutions that provide the foundations for personal and business success, is what we do.
To learn more about legal matters related to establishing a business consultancy please contact Robert Lamb on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au
For further reading about taking the plunge from executive to consultant, please click the link below:
From Executive to Mining and Resources Consultant by Craig Barry
Resources Unearthed is a solutions hub that provides integrated financial, legal, property, accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.
The information in this article 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.
