Starting a business at home can be a very exciting time and although many businesses grow out of a hobby, it is wise to consider your obligations to meet local and national statutory obligations in your country.
Here in Australia there is a little bit of leniency for you to start your business as a hobby, trading under your own name, however when you get close to or exceed the allowable income from a hobby you will be required to register an Australian Business Number (ABN).
You can trade with an ABN on a small scale without the need to collect Goods & Services Tax (GST), however when you exceed the allowable limit, you will also have to register to collect and pay GST on all sales made.
There are several trading structures you can trade under including:
- Sole trader: an individual trading on their own
- Partnership: an association of people or entities running a business together, but not as a company
- Trust: an entity that holds property or income for the benefit of others
- Company: a legal entity separate from its shareholders.
These are just some of the high level basics structures and it becomes even more complicated when you start introducing partners, additional directors, trading as names etc.
Although the example I’ve used here is specific to Australian conditions, all countries have their own laws and statutory obligations for you to meet, so it is important that you do your research and make sure you’re in compliance with your local laws.
You will be able to find out your obligations by visiting your government’s websites and you will in most cases need to make sure you check both the national and state government websites, as you may find that you have obligations to not just your countries governing bodies, but the state you live or trade in also.
Finding this information should be fairly simple if you do a quick search in Google for the term “Rules for starting a business in (add you country name here)” or alternatives like “legal obligations when starting a business in (add you country name here)”. If you’re not finding the information you’re looking for, just keep on trying variations of the descriptive phrase in Google and you should find what your looking for.
Other sources of information about forming and running a business in your community can be found either though your state government, local city council or a chamber of commerce.
Don’t be shy, give them a call, because that is what they are there for and it is worth spending the time finding out what you need to comply, because breaking their rules usually comes with fines and penalties, and they usually don’t accept that you didn’t know something as an excuse.
Making sure you are compliant can be confusing and costly if you get it wrong, so it is always advisable for you to seek the advice of professionals (e.g. accountant, lawyer, business advisory service).