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What is the best structure for my business?



Congratulations! Your dream business is coming to fruition and you’re ready to kick it off and dive right in. Your question then becomes “Do I need a company?”, or “Do I have this business in my own name?”.

The answer – well, that depends.

There are 4 basic structures under which you can operate your business.


1.Sole Trader

2.Partnership

3.Company

4.Trust

Let's look at these in detail.

Sole trader

A sole trader is the simplest business structure.


As a sole trader, you have full control of all aspects of the business and have sole responsibility for the debts of the business.


Any net income or losses of the business is included in your personal income tax return, along with any other income you earn.

If you do decide to take on any employees there are obligations you must comply with such as workers’ compensation and superannuation contributions.


Once the sales, fees or gross revenue from the business reaches $75,000 you need to register for GST.

Partnership

A partnership is two or more people or entities who do business as partners or receive income jointly.


In a partnership, control or management of the business is shared. A partnership is not a separate legal entity, so you and your partners are all liable for all debts and obligations of the business. This is important to note because what one partner does affects all the other partners. Hence a formal partnership agreement is highly recommended.


Any net income or losses of the business is distributed to the partners in accordance with the partnership agreement and reported within the partners income tax return.


Once the sales, fees or gross revenue from the business reaches $75,000 you need to register for GST.

Company

A company is a separate legal entity unlike a sole trader or partnership. This means it has the same rights as a natural person and can incur debt, sue, and be sued.


The company’s shareholders (owners) are generally not liable for company debts. The exception for this would be if a personal guarantee has been given.


A company is a relatively complex business structure, with higher set-up and administrative costs. Companies must be registered with ASIC (Australian Securities & Investment Commission), and company officeholders have legal obligations under the Corporations Act.


Any net income of the business is reported in the company income tax return and taxed at the company tax rate. Losses of a company are carried forward from one year to the next until a profit is made.


A company tax return needs to be lodged annual with the ATO.

Trust

A trust is an obligation imposed on a person or entity, the trustee, to hold property or assets (e.g. business assets) for the benefit of others (known as beneficiaries).


A trust is a relatively complex business structure, with higher set-up and administrative costs.

Setting up a trust requires a formal deed, as well as the completion of yearly administrative tasks. If you operate as a trust, the trustee is responsible for its operation.


Any net income of the business is distributed to the beneficiaries in accordance with the Trust Deed and reported within the beneficiary’s income tax return. If the trust makes a loss then the losses are carried forward until such time as a profit is made. Losses in a trust are not distributed or allocated to beneficiaries.


Need Help?

There are a number of things to consider when working out what structure to use. You need to consider the type of business, the parties involved, and risk factors. Contact us and we can go through the various options available to you and what structure is best given you circumstances.

Contact us on 0422 391 370

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Where are we?

We are located in the Parramatta area and can travel to you for your convenience. Alternatively, we can meet with you virtually.

Aztec Accounting Pty Ltd

ABN 86 634 317 696

    hello@azteccounting.com.au

    ​Ph 0422 391 370

    ​PO Box 993

    Parramatta NSW 2124

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