Choosing the right structure for you and your business!

When starting a new business it is important that you pick the right entity structure but also be aware that as your business grows there are opportunities to change structures.

There are four types of entity structures, Company, Trust, Partnership & Sole Trader, to choose from when setting up a business and they each have their pros and cons depending on your circumstance and plans for your future business.

We have created a short video series relating to each one of these entity structures to help you make the best decision possible and these can be found weekly on our Facebook page!

In the meantime, here are the key elements to each structure:

A company:

  • is a separate legal entity

  • is a more complex business structure to start and run

  • involves higher set up and running costs than other structures

  • requires you to understand and comply with all obligations under the Corporations Act 2001.

  • means that business operations are controlled by directors and owned by the shareholders

  • means company members have limited liability

  • means the money the business earns belongs to the company

  • requires an annual company tax return to be lodged with the Australian Taxation Office (ATO)

  • requires you to complete an annual review and pay an annual review fee

  • directors are required to complete a declaration of solvency each year

  • means wider access to capital

  • directors are required to have a director ID.

If you want to set up a trust, keep in mind that trust structures:

  • can be expensive to set-up and operate

  • require a formal trust deed that outlines how the trust operates

  • require the trustee to undertake formal yearly administrative tasks

  • assets are protected

  • can be difficult to dissolve or make changes once established

A partnership business structure:

  • are relatively easy and inexpensive to set up

  • have minimal reporting requirements

  • require separate tax file numbers (TFN)

  • must apply for an Australian business number (ABN) and use it for all business dealings

  • share control and management of the business

  • don’t pay income tax on the income earned - each partner pays tax on the share of the net partnership income each receives

  • require a partnership tax return to be lodged with the Australian Taxation Office (ATO) each year

  • require each partner to be responsible for their own superannuation arrangements

  • must register for GST if turnover is $75,000 or more

If you’re looking at starting your business as a sole trader, consider the following key elements. A sole trader business structure:

  • is simple to set up and operate

  • gives you full control of your assets and business decisions

  • requires fewer reporting requirements and is generally a low-cost structure

  • allows you to use your individual tax file number (TFN) to lodge tax returns

  • doesn't require a separate business bank account, although this is recommended to make it easier to keep track of your business income and expenses

  • requires you to keep financial records for at least 5 years

  • has unlimited liability and all your personal assets are at risk if things go wrong

  • doesn’t allow you to split business profits or losses made with family members

  • makes you personally liable to pay tax on all the income derived

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