Business & Company Structure Advice
When it comes to business structures there is a range of options. The most common structures in Australia include sole trader, partnership, company and family (discretionary) trust. Before you decide on which structure is the most appropriate for your business circumstances, reach out so we can help you get started on the right note.
When evaluating the right business structure you need to consider the likely profitability of the business, the current tax position of all stakeholders and the risk profile of the industry. Sometimes it’s as simple as knowing whether it’s easier to do business as a sole trader or a company in your industry. This is where Accumulus can dive in and give you the initial guidance you need!
Many people start out as a sole trader. It’s the simplest and easiest structure to set up. All you need is a valid ABN and you can begin. Your tax return happens at the end of the financial year as normal and if you reach the threshold for GST, you register and charge GST. But the biggest downside of this structure is that if you run into financial trouble, everything you own is at risk.
Partnerships are two or more people who run a business together and share profits. Like sole traders, each person in the partnership is liable when it comes to debt.
To protect yourself and everyone involved from future issues, it’s best to draw up a partnership agreement that outlines everything, including who is responsible for what, how profits will be shared and distributed, and what happens if one of your partners wishes to exit the partnership.
Unlike partnerships and sole traders, a company is a separate legal entity, which means your personal assets are safer in case the business runs into hard times.
All shareholders in the business receive after-tax profits via franked dividends, and any salaried shareholder must receive the mandatory superannuation contribution. Though this structure may look like the best way to protect yourself from financial trouble, setting up a company structure is a costly exercise to set up, and 100% of any capital gain is taxed.
There are many different types of trust structures, but the most common two are:
- Discretionary trusts most commonly used for a family business, Unit trusts, where there is more than one “partner” in the business and each partner has a fixed entitlement to the profits of the unit trust.
- Trusts are a complicated structure that offers many tax benefits but can also incur losses that affect future profits. The ATO provides a step-by-step guide to setting up a trust, but it is best to get legal advice and assistance to ensure you meet all the requirements and find an accountant who understands the management of a trust.
