Thinking of Starting a Business
There are various structures to establishing a business. Our firm specialises in providing a well-tailored structure for every client.
The four main and commonly used business structures used in Australia are:
- Sole trader
With each, there comes different business requirements and tax obligations. That’s what makes our firm stand out from most, as it allows us to help in a legal and accounting aspect saving you money and allowing one body, with the required knowledge to deal with both.
It is known to be the simplest form of business and cheapest to start up. The sole trader which would be yourself, makes key business decisions about the day to day running of business. You are entitled to employ individuals to work for you, however, you are not considered an employee of your own business.
- It allows the sole trader to use their individual tax file number (TFN) to lodge their tax returns.
- Relatively easy to convert into a different type of business structure.
- Less reporting requirements.
- Complete control of business and assets
- Your assets may be at risk if anything goes wrong.
- Unlimited legal liability
- Cannot split profits between family members and must pay tax on all income made by the business.
Entering a partnership requires 2 or more people running a business together. In Victoria partnerships are governed by the Partnership Act 1958. This business structure requires a tax file number to be created.
- Work load and burden made easier if two people are running the business.
- Tax advantages may apply for partnership structures.
- When entering the partnership, like being a sole trader, there is still unlimited liability on both partners, even if one partner was not at fault, they are still liable.
- Cannot move forward and carry on with business in case of death of a partner.
Public or Private Company:
A company whether public or private, is considered to have its own legal entity, and its own body. The difference between a public and private company is, the way in which shares are made available and distributed.
A public company’s shares are accessible on the ASX Stock Exchange list whereas a Private company is unlisted with a specific number of shareholders and directors appointed to run the company. When a company is set up, usually an Australian Business Number (ABN) and Tax File Number (TFN) for the company is applied for as well.
Advantages of Companies:
- Due to the company being its own legal entity, only company assets are at risk and liable.
- The business is controlled by directors and owned by shareholders.
- In the instance of a death of shareholder or director, the business can move forward unlike a partnership structure.
Disadvantages of Companies:
- Requires strict compliance with the Corporations Act 2001
- More complex structure to run, requiring more start-up capital
- Registration for GST and annual taxation lodging for the company itself.
This business structure tends to be quite complex in nature and the most complex to establish. A trust is an obligation placed on an individual or company known as the trustee, where assets and property are held for the business for the benefit of others (beneficiaries). The trust also requires an ABN and TFN to be established.
Advantages of Trusts:
- Company still own legal entity.
- The trustee is responsible for operation of the trust.
- Limited liability if the trustee company is in the form of a company.
- Formal Trust Deed established setting out the operation of the company.
- Trust income taxed as income of an individual.
- More private nature then a company.
- Flexibility in distributing assets to beneficiaries
- Can be costly to establish.
- Complex business structure requiring thorough understanding.
- Powers of trustees restricted to trust deed.
If you’re looking to establish a business and unsure of which structure is suitable for you and after information on the specific tax obligations that comes with the well-tailored structure, please feel free to contact Karolidis & Co on (03) 9942 7790 or email us at Nick@Karolidis.com.au .
Please be aware that this is a brief informative guide on business structures and how they operate only and specific legal advice should be sought whether you wish to take the first steps of establishing your own business or company.