business registrations & setups
Starting a business can be exciting and rewarding. Choosing the right business structure is one of the key elements in getting your business foundation right.
There are seven structures under which one can register a business.
Sole trader Partnership Company Trust
Co-operative Not-for-Profit Registered Charity
4 commonly used structures are described below
Company Structure
A company is a separate legal entity that can own assets in its own name. Under this structure owners of the business are shareholders who inject in capital via share holdings. A Private, or proprietary, companies have no more than 50 non-employee shareholders, and it cannot issue a prospectus or sells shares to the public. This type of business structure is governed by Australian Securities and Investments Commission (ASIC).
Key Pros and cons of company structure are as follows:
| Pros | Cons |
| Liability is limited for the shareholders | Administrative costs including ASIC renewals |
| Shareholders can take advantage of imputation Tax system | Not appeal to negatively geared investments. |
| Gives owners opportunity to be employee in the business. | Company distributions (Tax preferred) will have tax implications. |
| Transfer of asset ownership can occur under certain circumstances without significant stamp duty costs. | Director/ and other responsibilities as per corporations law. |
| Companies are entitled to make tax deductible retirement payments to all employed family members. | In family setup, it may lead to payroll tax depending on number of employees |
Sole Trader Structure
This is the simplest form of business structure. Under this structure an individual trades on their own. He or she controls and manages the business.
Key Pros and cons of sole Trader structure are as follows:
| Pros | Cons |
| Simple to setup and can start will small capital | Lack of ability to split income.
|
| Owner controls and manages the operation | Liability risk - the assets of the sole trader (including personal assets) are at risk |
| Less complex in terms of dissolving/ ceasing operation | Company distributions (Tax preferred) will have tax implications. |
| As this structure is under individual taxpayer’s tax file number, losses from business can be claimed | Capital restrictions - Sole trader’s ability to access to large sums of capital |
| Sole trader is eligible to claim the 50% CGT discount
| Solely dependent on owner: business ends when the sole trader ceases working on retirement or death |
Partnership Structure
A partnership is an association of individuals/ entities for the purpose of carrying on a business activity with a view to profit. The Partnership agreement provides evidence of parties intending to be in a partnership. Usually maximum number of partners in a partnership is 20 (but there are exceptions).
Key Pros and cons of Partnership structure are as follows:
| Pros | Cons |
| Allows for splitting of Income |
|
| Each partner pays tax on their share of distribution and under this structure losses are not trapped. | Liability risk - joint and several liability of partners (including personal assets) are at risk |
| Less costly to setup than company or trust | It is difficult to transfer an interest in a partnership as compared to transferring shares in a company. |
| The partners have full control and decision maker powers. Partnership agreement can allow for flexibility | Business continuity is impact where partnership agreement is altered |
| Partners are eligible to claim the 50% CGT discount. (However, it may get diluted)
| Normally partnership cannot have more than 20 partners. In certain professions like accountants, doctors & lawyers (are not allowed to enter into a partnership agreement with an unqualified person).
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Trust Structure
A trust is an obligation imposed on a person (Trustee) to hold property or income for the benefit of others (beneficiaries). Trustee does all transactions in respect of the trust
Key Pros and cons of Trust structure are as follows:
| Pros | Cons |
| Allows for splitting of Income – Flexibility with distributions amongst beneficiaries | Trustees powers may be restricted by trust deed |
| Limited liability is possible if a corporate trustee is appointed | A tax loss in a unit trust cannot be distributed to unit holders |
| A trust provides asset protection & provides more privacy than a company | Trusts can be complex and do come with Administrative costs. |
| Each unit holder pays tax on his or her share of distribution
| Trust may have borrowing/ financing complexities |
| Unit Trusts are eligible to claim the 50% CGT | Capital gains cannot be deferred using CGT roll-over relief provision when assets are transferred into a trust.
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If you would like more information on how to set your business, please complete and submit the enquiry form or call us 0417673055
  | Business Registrations
Meet your Tax obligation by arranging your financial affairs through Tax effective investment strategies or through tax plans. Call us through 0417673055 for professional advice. |