One of the most important decisions anyone will make when starting a business or company is choosing its structure. Your choice of business structure will depend on the size and the type of business and how it is going to be run. It is critical that the correct structure is set up from the start. Always remember that taxation in Australia is complicated, so all business structures impact critical areas like asset protection, costs to set up, and, of course, taxation. Depending on what is needed, there are different structures that you can choose to start or expand your business.
Different Business Structures
- Sole Trader
The most straightforward and most inexpensive business structure to set up with very few tax formalities and legalities. As a sole trader, you are responsible for all aspects of the business, including any debts incurred. You become personally liable for all debts.
- Partnership
This involves two or more people who are business partners and jointly receive income and jointly pay expenses. Control or management of the business is shared. All partners share all debts and obligations. It is common to have a formal partnership agreement and a buy sell agreement. You are still personally liable for all debts.
- Joint Venture
This is when two or more people or entities join forces to do business together, particularly for a single project or venture, rather than a prolonged and ongoing business. All parties will always sign a formal joint venture agreement.
- Company
A company is a separate legal entity in its own right. It can also Sue or be sued and incur debts in its own right. The company’s owners or shareholders can limit their personal liability and are not liable for company debts. On the other hand, Directors can be personally liable if the company cannot pay its debts as and when they fall due. Companies are taxed at a different rate.
- Trust
A trust is created from something of value. There is an obligation imposed on a trustee to hold property or assets for the benefit of others. The trustee may be indemnified for the liabiliteis of the trust from the assets of the trust. A trust requires a formal trust deed and completion of yearly administrative tasks. The appointed trustee is responsible for all operations. Using a trust structure for a business may have some tax advantages.
Choosing the right structure for your business
Evaluating the right business structure means considering the industry’s risk profile, the current tax position of all stakeholders, the ownership of assets and the likely profitability of the business. Selecting a specific business structure also means considering if that structure will make doing business easier. Thus, the chosen business structure is usually a compromise based on:
- Reduction of income tax
- Protection of assets.
- Allowing admission of new business partners or investors
- Adherance to all legal requirements within the industry
- Future entitlement to Capital Gains Tax Concessions
An accountant can help with your business structure
Before deciding on a particular business structure to use, the best thing to do is to seek an accountant’s advice. Accountants have a vast experience, especially when dealing with business structures, and most importantly, complex taxes. Working with an experienced accountant can also help solve business problems, connect you to other means of funding and grow your industry networks.
Second Look Accounting & Taxation
As our name suggests, you can rely on us to take a “second look” and offer you the best advice on business structures. We provide personalized and experienced accounting services on the Gold Coast and surrounding regions.
Give us a call on 07 55 305 118.