Starting a Collaborative Economy business

If you provide a good or service though a Collaborative Economy platform you may have to establish yourself as a business. This will depend on whether you are undertaking this activity as a hobby, or if you have the intention of making a profit.

How do I know if it's a business or a hobby?

The ATO and business.gov.au provide information and examples to help you understand the differences between a hobby and a business, including a self-assessment tool.

There is no single rule that determines if you’re in business. Business.gov.au recommends you start by asking yourself the following:

  • Is the activity being undertaken for commercial reasons?
  • Is your main intention, purpose or prospect to make a profit?
  • Do you regularly and repeatedly undertake your activity?
  • Is your activity planned, organised and carried out in a business-like manner?

If you answered yes to most of these questions, you're likely to be running a business. 

When running a business you pay tax on the money you earn, can claim for deductions on your expenses and generally need an Australian Business Number (ABN).

Regulations, licences and permits

Depending on the service you are providing, you may need to hold a licence regardless of whether it is a hobby or a business. For example, if you are providing certain home maintenance or building services, you will need to be a licensed trader.

Once your hobby becomes a business, you may also need additional licences and permits specific to your type of business. If you're running a home-based business, for example, you may need council approval.

It's important to find out what registrations and licences apply to your hobby or business. Having the correct licences and registrations is fundamental to operating within the law. The Australian Business Licence and Information Service (ABLIS) search at business.gov.au is a good place to start. This enables a location-specific search of government licences, permits, approvals, registrations, codes of practice, standards and guidelines to meet compliance responsibilities.

What do I need to do?

For startups and new platform developers

If you are planning to develop a new Collaborative Economy platform you will likely have to establish yourself as a business.

If you are developing this platform for commercial reasons, to make a profit and your activity is being carried out in a business-like manner, you would ordinarily be considered to be running a business. If you are uncertain about whether your activity is a business or just a hobby, visit the ATO and business.gov.au for guidance.

It is important to understand the regulatory environment you want to operate in. It is possible that your innovative business idea does not fall within existing laws, or provides a significant challenge. If this is the case, you could consider being part of NSW Government’s Regulatory Sandboxes program.

Find current laws:
NSW Legislation website
Commonwealth legislation

Choose the right business structure for you

There are many different ways to structure a business. Choosing the appropriate structure will depend on factors including the number of people with decision making power, size of the organisation and financial status.

There are several possible business structures. The first four are the most widely used in Australia:

  • Sole trader - an individual trading on their own 
  • Partnership - a number of people or entities running a business together, but not as a company 
  • Company - a legal entity separate from its owners 
  • Trust - an entity that holds property or income for the benefit of others 
  • Co-operative - member-owned business organisation with at least five members 
  • Association- an entity usually established for recreational, cultural or charitable purposes 

Incorporating your business

Incorporation means legally declaring a corporate entity as separate from its owners. It has many advantages including:

  • Protecting the owners assets against the company’s liabilities
  • Allows easier transfer of ownership to another party
  • Attracts a lower tax rate than on personal income
  • Receives more lenient tax restrictions on loss carried forward
  • Can raise capital through sale of stock.

You can incorporate your business by lodging an application with the Australian Securities and Investment Commission (ASIC).

Business Names

A business name is not a legal entity, but is owned by and registered to a legal entity, which will in most cases either be an individual or incorporated entity like a Pty Ltd company.  Other legal entities might include a partnership, or an incorporated association.  

A business name is like a nickname – something one is known by, but definitely not formal enough for naming in a contract or an invoice. Problems can arise when you have contracted with, and issued invoices to, a business name instead of the correct legal entity.  For example, you can’t sue a business name in court proceedings to enforce money owed to you.  You can only sue a legal entity

The Australian Securities and Investment Commission (ASIC) is responsible for business names registrations. When establishing your business, you should visit ASIC's website to register, renew, cancel or make changes to business name details. New businesses will need to obtain an Australian Business Number before registering a business name.

If you are involved in a dispute with a provider or supplier who is also a business, you will also be able to search ASICs registers for information needed to bring legal proceedings.

Contracts

It is important to have terms and conditions in contracts that directly relate to your scenario, and have been crafted accordingly.  It is not always sufficient to copy another business’ Terms and Conditions and Privacy Policy, or use precedent documents and not having them legally checked to make sure they cover your situation.

While standard form contracts are useful in some situations, they are not a “one-size-fits-all”, and may leave you legally exposed and at risk of being sued. If terms and conditions of contracts are not tailored to your situation, they may not be enforceable in a court.

9 common pitfalls for entrepreneurs

  1. Failing to secure all intellectual property as early on in the process as possible 
  2. Not obtaining all the social media for the brand as soon as you are settled (as well as web addressesbusiness namesregistrationsTrademark, and patent advice
  3. Not dealing with the correct legal entities in all business contracts. Due diligence is essential 
  4. Not having legal agreements (such as terms and conditions, privacy policy and disclaimer) tailored to the business   
  5. Having an incorrect business structure for the objective 
  6. Not obtaining the right financial advice at the right time, including personal tax obligations  
  7. Inadequate business insurance that doesn't cover the activities or is not current
  8. Not incorporating soon enough and failing to register for GST
  9. Not maximising your gains if your business is bought out 
What do I need to do?