Setting up the best structure as a vehicle for your business is one of the most important decisions you’ll make. Will you operate as a sole trader, in partnership or as a company?
Different business structures each come with pros and cons which may, or may not, provide advantages to you in your individual circumstances.
In determining the most appropriate structure for your circumstances you should consider taxation implications, asset protection (yours and the businesses), and what your plans are for the business when you’re no longer running it (we call this succession planning).
Sole Trader
A Sole Trader is a structure whereby you the individual, and the business are one and the same. Unlike other business structures there is no legal separation between the two.
A Sole Trader can operate under their own name or register a business name with the Australian and Securities Commission. An ABN will also need to be obtained through the Australian Taxation Office.
A Sole Trader is the most basic business structure available in Australia. It’s easy to setup, to control and all profits flow to the individual. That said, all debts and liaiblities of the business are those of the sole trader, there are taxation implications and the business ceases to exist if the sole trader dies.
Partnership
A Partnership describes two or more individuals who carry on a business together and share the income and losses of the business. It is a simple structure and relatively inexpensive to setup.
A Partnership does not create a separate legal entity and each partner is liable for business debts. You are also jointly and severally liable for business debts incurred by your partner.
It is essential you have a Partnership Agreement in place to prevent misunderstandings about what each partner brings to the Partnership and what they’re entitled to from the Partnership.
Whilst the Partnership does have its own TFN and must lodge annual returns it pays no income tax. Instead each partner reports their share of partnership income in their own personal return.
Company
Unlike the first two structures creating a Company does create a legal entity separate from its owners. Consequently, the company’s owners can limit their personal liability and are not typically liable for company debts.
A Company is a more complex business structure with additional reporting requirements, and business operations are controlled by Directors and owned by Shareholders.
To help determine which business structure is best suited to your individual circumstances get in touch with us and book a time to talk with one of our Business Law specialists.
