There are a number of different business structures available in Australia, each structures have potentially different tax rates, tax implications and legal requirements.
Choosing the right structure for your business can save you thousands of dollars in tax every year.
Though the tax-effective position of the business structure should not be the only topic to consider. Asset protection is another major reason when choosing a business structure.
The most common business structures in Australia are sole traders, partnerships, companies and trusts. Each has advantages and disadvantages.
It is important to understand how each one works before making a decision.
A qualified accountant can advise you on the differences so you can decide what is best.
Sole trader structure is the simplest type of business structure. You are the sole owner of the business and are responsible for all of the profits and losses.
Business income is included in your individual tax return, sole traders are taxed at personal income tax rates, which vary when compared to the corporate tax rate.
All you need is an Australian Business Number (ABN), which is free.
A partnership is similar to a sole trader, but when two people go into business together. The ownership and responsibility is shared, inlcuding debts of the business.
With some tax advantages, with each partner paying income tax on their share of business profits. There is also the potential for disagreements between partners.
As a business owner, the strategy of which business structure is best optimised for your business plan is a major decision.
We will describe a few below.
Work with Assuris business accountants and discuss the structure of your business today.
Setting up your business as a family trust is a legal arrangement in which a trustee holds assets, and runs the business on behalf of the trust's beneficiaries.
The trustee is typically a family member or close friend who is trusted to manage the assets in the best interests of the beneficiaries. A trustee can also be a company which manages the business.
A family trust can be used for a variety of purposes, including estate planning, asset protection, and tax planning.
One of the key benefits of a family trust is its ability to control assets, and not own them. This means that the trustee can make decisions about how the assets are used and managed, without having to get approval from the beneficiaries.
Another key benefit of family trusts is the flexibility to strategically allocate profits for tax purposes. This can help you minimise your overall tax liability. An important note here when allocating to beneficiaries is to consider any legal requirements which may be applicable at that time, for example s.100A.
There are a number of advantages and disadvantages to consider when deciding if a private company is the right business structure for your business in Australia.
A company structure is a separate legal entity from its owners, and can have limited liability.
Carrying on a business through a company separates business and personal liability. In the event that the company is unable to pay its debts, the limited liability protection offered to its shareholders means that the shareholders’ personal assets are generally protected.
This is a significant advantage compared to other business structures such as sole traders and partnerships, which do not offer this same level of protection.
Another advantage of a private company is that it can raise capital through the sale of shares. This can be a key source of funding for growth and expansion. By selling shares, a private company can bring in new investors who can help provide the capital necessary to fuel growth. Additionally, selling shares can help a private company tap into new markets and reach new heights.
A company is more complex to set up and ongoing compliance costs higher than a sole trader or partnership. The benefits though, depending on your individual circumstances can often out weigh these costs.
