Growing up in a business family can be a real advantage when you start your own venture. You may have access to capital, suppliers, customers and staff that other founders take years to build, and parents who want to help.
That help can create legal questions that founders without a family business never face. Is the money from your parents a loan, an investment or a gift? Can you use the family company’s supplier list? Who owns the brand if the family business helped create it? What happens if your parents’ group gets into difficulty, or you separate from your partner?
This article outlines, in general terms under Australian law, the issues next-generation founders commonly need to consider.
Choosing a structure
Ventures in Australia are commonly run through a company, a trust (often with a corporate trustee), a partnership, or a combination. In general terms:
- A company is a separate legal entity, can issue shares to co-founders and investors, and generally limits shareholders’ liability, although directors may give personal guarantees.
- A trust may offer flexibility in distributing income, but it can be harder to bring in outside investors and needs a trustee with the right powers.
- A partnership is simple to start but partners may be personally liable for partnership debts.
Which structure suits depends on the business, the founders, plans to raise capital and tax, which needs an accountant’s input. Setting up a company is discussed in a separate article.
The founders’ or shareholders’ agreement
Where there is more than one founder, a founders’ or shareholders’ agreement may deal with matters such as who contributes what, vesting of founder shares, decision-making and deadlock, what happens if a founder leaves, restraints, and how shares can be sold. In family ventures, a parent who invests may expect a say, and a sibling co-founder may be treated differently from an outside one. The agreement for a new venture should reflect that venture, not simply copy the family group’s.
Family money: loan, equity or gift
Parents often provide start-up funds informally. How that money is characterised can matter later.
- A loan is repayable. A written loan agreement may cover repayment, interest (if any), security and what happens on default, death or relationship breakdown. An undocumented loan may be hard to prove or enforce.
- Equity makes the parent (or their entity) a shareholder or unitholder, with the rights that come with that, including a share of future value and, depending on the documents, a voice in decisions.
- A gift is not repayable, but may be treated differently in a later family law property settlement or estate.
The choice can have consequences beyond the business. In a family law property settlement, courts may look at how a contribution was documented and treated in practice. In the parents’ estate, a loan may be an asset of the estate, and siblings may ask whether a gift should be taken into account. Tax treatment can also differ, including where the money comes from a family company or trust, which may raise Division 7A or other issues for the accountant.
Where money comes from overseas, it must comply with the laws of the country it leaves and with Australian law. We work with lawyers in that country on any outbound approvals. Australian banks will ask about the source of funds and source of wealth, and anti-money laundering and counter-terrorism financing laws apply.
Using family business resources, opportunities and staff
Founders sometimes start by using the family company’s office, staff, supplier relationships or customer lists. This can raise issues on both sides:
- the family company’s directors owe duties to that company, including not to misuse its information or opportunities, and allowing a related venture to use them may need proper approval;
- confidential information and customer data may be protected by contract, the general law and privacy obligations;
- shared staff may raise questions about who employs them and is responsible for their entitlements.
A written services or licence arrangement may help, depending on the facts.
Who owns the intellectual property
Brands, recipes, software, designs and customer data are often a new venture’s most valuable assets. In general, the creator of a work, or their employer where it is made in the course of employment, may own the copyright unless an agreement says otherwise, so work done by contractors, co-founders or family company staff may not automatically belong to the new venture. Registering a business name does not give the same protection as a registered trade mark. Assignments and registrations are worth considering early, especially before investors carry out due diligence.
Director duties and Director ID
If you become a director, you take on duties under the Corporations Act and general law, including to act with care and diligence, in good faith in the company’s interests, and not to misuse your position or information. Directors can be personally liable in some circumstances, such as insolvent trading and certain tax debts. A director generally needs a director identification number before being appointed, and ASIC has announced that, from 1 July 2027, companies will also need to provide director IDs to ASIC. Being a director of both the family company and your own venture can create conflicts that need managing.
Keeping your venture separate from the parents’ group
Separation is often the goal, so that problems in one do not drag in the other. Points that may matter include separate entities and accounts, arm’s-length documents for anything shared, care with cross-guarantees and bank security, and clarity about whether the family trust or company is an investor. The family’s Wills, trust deeds and succession plans may also need to reflect the new venture.
A hypothetical scenario
Consider a son whose parents own restaurants in Melbourne and Kuala Lumpur. He opened his own café brand using his parents’ money and the group’s chef and bookkeeper. Years later, his parents’ estate plan, his own separation and an investor’s offer all turned on whether the money was a loan, a gift or equity, and who owned the recipes and brand. The right approach depended on facts that needed advice.
Questions to discuss with your adviser
- Should the family money be a loan, equity or a gift, and how should it be documented?
- How might that choice affect a family law settlement or the parents’ estate?
- Are any family company resources, opportunities or staff being used, and on what terms?
- Who owns the brand, software, recipes and data?
- Do any guarantees or security link the venture to the family group?
Frequently asked questions
Should family money for my business be a loan or equity in Australia?
There is no single answer. Each carries different consequences for tax, family law and estates, and the choice needs advice from a lawyer and accountant.
Do I need a written agreement if my parents lend me money for my business?
An undocumented loan can be hard to prove or enforce later, especially after a death or separation. Whether and how to document it depends on the arrangement.
Can I use my family company’s customers for my new business?
It may raise issues of directors’ duties, confidential information and privacy. Any arrangement may need approval and documentation.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates has practised in Melbourne since 1990 and advises next-generation founders and their parents on structures, founders’ agreements, family funding documents, intellectual property and directors’ duties. Justin Chua trained in accounting (Bachelor of Commerce, accounting major) and is an Accredited Family Business Advisor and a Nationally Accredited Mediator. As a second-generation lawyer in a family firm, he understands the founder–successor relationship first-hand. We work with the family’s accountant and registered tax agents and with lawyers in Asia, and we advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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