Establishing a Consultancy Business in Mining & Resources Part 1

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, these important issues 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 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:

Professional Indemnity
Equipment
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.