Legal Speak

LAYING FIRM FOUNDATIONS

How do you choose the best structure for your business? HVAC&R Nation legal expert Frank Gambera shares some tips.

Your choice of business structure depends on a number of factors. These include how profits are to be shared with other people; who is legally liable for the actions and debts of the business; and the tax implementations on earnings from the business.

We look at the most relevant structures below.

SOLE TRADER

The sole trader structure involves an individual trading on their own. This is the easiest method of starting a business and the simplest form of business structure.

The advantages of being a sole trader include low commencement/registration fees and independent control over business decisions. All profits and capital also belong to you. But there are disadvantages too. Your capital is limited by your personal assets, and you will be personally responsible for all debts and liabilities.

PARTNERSHIP

A partnership exists when two or more people go into business together and plan to make a profit. A partnership is not a separate legal entity like a company, so all assets of the partnership are owned by the partners jointly.

On the positive side, a partnership is inexpensive to start and establish. And shared control reduces your individual burdens.

On the other hand, partnerships bring the potential for disputes over profit sharing, administration and development. You will also be personally responsible for business debts and liabilities incurred by your partners.

COMPANY

A company is an independent legal entity able to do business in its own right. You will run the business as a director and/or shareholder.

The advantages of a company are that your liability for the debts of the business is limited to the money you have invested in the business, unless you agree to personally guarantee the debts. A company can also own property in its own name

There is, however, a large initial establishment fee. The establishment rules are complex, and the regulations are strict.

TRUST

Corporate trusts have become extremely popular in the industry. According to ATO data, in the 2014 financial year there were 802,000 tax returns lodged for trusts with a total income of $345 billion compared with 763,000 tax returns lodged for companies and 344,000 tax returns for partnerships.

A trust is a business structure where a trustee holds property or income for the benefit of others called “beneficiaries”. With a corporate trustee, the company is a trustee who owns the assets of the business and manages the trust. The members of the trust are directors of the company. A trust deed is usually prepared by a lawyer who formalises the powers of the trust.

There is a limited liability for trusts, because the business is a separate legal entity. They also make it easier to separate trust assets and personal assets. And business income can be split among beneficiaries to assist in minimising tax.

The disadvantages are that it is expensive to establish a business under a trust structure. And it does not offer protection from personal liability

Damien Walsh

Stefan Jensen

Sarah Simmonds

Brett Hedge

Sue Falcke

2020 VISION

The new decade we’ve just entered will present both opportunities and challenges to the HVAC&R industry. Sean McGowan explores the year ahead with Damien Walsh, group brand manager at Temperzone; Stefan Jensen, F.AIRAH, managing director at Scantec Refrigeration; Sarah Simmonds of Simmonds Heating & Cooling; Brett Hedge, M.AIRAH, sales and marketing manager at Kirby; and Sue Falcke, events organiser for ARBS Exhibitions.

Walsh: It was an exciting year for Temperzone with the introduction of many new products from both Temperzone and Hitachi. There has been strong market growth in various product segments, particularly around residential channels in NSW and Queensland, and newer commercial products, despite a challenging economy.

Jensen: Following three very busy years leading up to New Year 2018/19, the start of 2019 was characterised by a slow-down in business. The timing of this slow-down appeared to coincide with the publication of various polls predicting an ALP win at the May 2019 federal election. The federal election result did not cause an immediate improvement in business, but towards the end of third quarter 2019, signs of improvements did emerge.

Simmonds: We’ve taken some big hits from some players in the building industry that we have been working hard to recover from. In saying that, it has also been an exciting year, with us focusing a lot on our commercial division and taking on our own commercial estimator and project manager.

We saw some results of all the hard work and effort put in by not only ourselves as owners but the whole team at Simmonds when we won the 2019 CCN Contractor of the Year award.

Hedge: It was a year of much change, largely concentrated around the rebranding of the company and a reset on focus areas to help reinforce this change back to Kirby in our wholesale stores.

We continue to see start-ups and new product offerings coming into the market

Falcke: ARBS 2020 went on sale in June 2019, with demand so strong that by mid-July we had to request an extension of space with the Melbourne Convention and Exhibition Centre (MCEM). This has never happened this early before.

By the end of 2019 we were tracking at just on 90 per cent sold, with the extension making ARBS 2020 the biggest exhibition ever held in Melbourne! We are delighted with the support from the industry and are looking forward to what will be a bumper show next year.

What business conditions do you expect to face in 2020?

Falcke: When I talk to exhibitors there is still cautious optimism. We continue to see start-ups and new product offerings coming into the market. Going by the increased amount of space booked by some of the major multinational exhibitors, there would appear to be growing confidence in their ability to expand their market share in the commercial/industrial space.

Hedge: We are expecting improved confidence in 2020 – noting that there has definitely been varying confidence through the country this year. We have definitely witnessed changes in behaviour throughout the market, evident by product choice and capital expenditure.

Jensen: There are signs that the predictions of rising energy costs and rising costs of hydrofluorocarbon (HFC) refrigerants are slowly starting to influence buying decisions for new plant. It is also apparent that the same predictions are starting to have an impact on what refrigeration plant users do about making their existing systems more energy-efficient.

Simmonds: We are hoping to be involved in a lot more commercial work, and steering away from builder work, which was a big focus in the past few years.

Walsh: 2020 is expected to be another competitive year. There will be continued focus from larger companies to seek more sustainable lower-GWP products for R22 replacement, with a focus on high efficiency. We have budgeted for continued growth in 2020, along with innovative product introductions across various segments.

It seems like business confidence might be improving then?

Jensen: Confidence depends on whom you talk to. Clearly those entities able to provide future-proof solutions are less concerned about the future than those entities and individuals whose future business prospects depend solely on HFC refrigerants and equipment utilising these working fluids.

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MCEC // MELBOURNE 19-21 MAY 2020

The federal government cannot rely entirely on interest rate cuts by the Reserve Bank to deliver necessary economic stimulus. The energy conservation potential generally within HVAC&R applications is enormous. With current technologies, it is possible to halve the energy consumption of the sector. The federal government has a significant role to play with respect to incentivising this change. A very good start would be massive training initiatives at all levels of the industry from trade levels to engineering.

Simmonds: In our opinion, it is improving. The feedback we get from various contractors/customers, as well as the general public is that the demand for more energy-efficient systems and programs naturally assists our trade, and the demand for upgrades reflects this.

Walsh: General market confidence remains flat, with many areas such as new homes, apartments and infrastructure down. Over the past few months some areas of the HVAC industry have seen an increase; however, the market looks to remain tough for a while yet.

Falcke: I would have to say that our own experience is showing an improved business confidence simply due to the increase in demand of space sales for ARBS 2020. The improvement is evidenced since previous sales in 2017 for the ARBS 2018 exhibition in Sydney.

Hedge: From what we have seen in 2019, there was some improvement in the latter part of the year and we are hopeful that this will continue in 2020.

What will be the greatest challenges to businesses, like yours, operating in the HVAC&R industry in 2020?

Hedge: There is increasing demand for technical support across our customers, and service level expectations are increasing. A connected world means that people expect better information in real time.

Vocational training in natural refrigerants and in flammable synthetic refrigerants is hopelessly inadequate

We are also seeing some attention on the changing refrigerant landscape, and that is an area that continues to demand special attention with our customers.

Jensen: The continued proliferation of flammable refrigerants and lack of application expertise at almost every level from trade to engineering.

Tertiary training in industrial refrigeration engineering is not offered in Australia. Vocational training in natural refrigerants and in flammable synthetic refrigerants is hopelessly inadequate and this will jeopardise the timely technology transition that must occur within the entire Australian HVAC&R sector to ensure compliance with the Kigali Amendment to the Montreal Protocol.

Another challenge will be the continuous bypassing of the HFC import quota via pre-charged equipment, which is providing the industry with a false sense of complacency. This has the capacity to drive very steep HFC price escalations when this pre-charged equipment requires HFC replenishments in the coming few years.

Walsh: As a true manufacturer in Australia, ensuring we continue to develop innovative products that offer value is an area of key focus. Some of the challenges of local manufacturing include raw material and shipping costs, along with competing against regions with lower labour costs. Other key challenges include issues such as the HFC phase-down, GEMS (Greenhouse and Energy Minimum Standards) Act and the industry skill gap.

The continued drive for energy efficiency and reduced emissions are also important. More efficient products combined with green buildings, and higher levels of insulation. Smarter controls will play a big part in the future of the industry.

Simmonds: The building industry and also the effects of global warming.

Falcke: We can expect an increased level of competition among the major players all vying for market share. That combined with a new and exciting range of product offerings delivering energy efficiency and new smart technologies will push the sustainability focus up another level.

The ARBS exhibition – slated for May 19–21 in Melbourne – is always a good barometer of the mood in the industry.

Do you have any predictions for big changes, or emerging technologies that could disrupt the industry in 2020?

Jensen: Our general prediction for 2020 is that there will be an increasing element of plant replacements. The drivers for these replacements will be reductions in energy consumption, improvements in plant reliability and minimisation of maintenance costs. Some interest is also starting to emerge in new ownership models where refrigeration plant users no longer own plant outright but pay for the conversion of electrical energy to cooling. For very high energy efficiency solutions, these types of ownership models are attractive both

for end-users, but also for financiers. It is a pre-requisite, however, that the provider of the plant has a track record and can predict annualised energy efficiency with a high degree of statistical certainty.

Hedge: Digital and smart technologies are having an increasing impact every year. We have seen high levels of engagement with the technological developments that we have delivered in the Kirby Smartaccess customer portal in the past year.

Falcke: We are unveiling our new tech precinct, IBTech@ARBS, next May, which is dedicated to the latest smart, connected and sustainable building and property technology.

The emergence of Internet of Things (IoT) into the HVAC&R industry will signal a new era in the way we configure our living, working and leisure spaces, with connected controls and data analytics creating the ability to more readily adapt a building’s services to the needs and comfort of occupants.

Walsh: Technology is a big one, with intelligent buildings, controls and connectivity coming to the fore. Open communications along with the ability to integrate systems onsite – providing bespoke solutions’ continued drive for energy efficiency and reduced emissions – is a major focus, with high-efficiency lower GWP products having a role to play.

Simmonds: We as a trade need to be constantly aware of the positive effects we can have on energy efficiency. Government laws that could be placed upon the HVAC industry in relation to gas emissions etc., could have a huge impact. ■

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