Are you looking to start a business?

Starting your own business is an exciting time, but it is important to understand the different business structures before you decide which one is right for your business. The business structure can have implications on your tax obligations, potential personal liability, and ongoing costs. 

The different types of business structures include: 

Sole trader 

A sole trader business structure is simple and relatively inexpensive to set up that gives you full control of your own business. This is attractive for many individuals starting a business. As a sole trader, you declare your business and tax affairs as part of your individual tax return lodgement. However, you will be solely responsible for any business debts, which makes you personally liable and puts your personal assets at risk.  

Company 

A company business structure is more complex with additional reporting requirements and involves higher setup and running costs. The company business operations are run by the directors and owned by the shareholders. A company is a separate legal entity from you, which means you are not liable for the company’s debt in your capacity as a member. However, if you are a company director, you should be aware of your duties and reporting obligations as you can be held personally liable for breach of your legal obligations. A company pays tax at the company rate and is required to lodge an annual company tax return.  

Partnership 

A partnership is made up of 2 or more people or entities and is relatively easy with low costs to set up. You may choose a general partnership where all partners are equal owners, and each has unlimited liability for the debts and obligations of the business. This means that if the partnership cannot meet its debts, the other partners will be responsible for that partner’s share of the partnership debts. If you want to split ownership in another way, a limited partnership is where the partner’s liability is limited to the amount of contribution made and do not play any role in the management of the business. Another type of partnership is an incorporated limited partnership. Here, the partners can have limited liability, but is made up with at least one general partner with unlimited liability and can become personally liable for the debts of the business. In a partnership, each partner pays tax on their portion of the net income each receives. 

Trust 

A trust structure is more expensive and complicated to set up. A trust is where a trustee carries on the business for the benefit of the trust’s members, who are the beneficiaries. A trustee is responsible for the business operations, income and losses, and can be a person or a company. A formal trust deed is required outlining how the trust will operate and the trustee decides how the profits of the business are distributed to the beneficiaries. A trust is used to protect the business assets for the beneficiaries, but it can be difficult to change or dissolve once established. The trust must have its own tax file number to lodge its annual tax return, but whether the trust is liable to pay tax depends on the wording of the trust deed and is determined by any income the trust earns that is distributed to its beneficiaries.  

As you can see, there are different options to set up your business. At Solari & Stock we can help you understand the key differences and find the right business structure for you.

To meet with one of our experienced Solicitors please contact Solari and Stock on 8525 2700, or click here to request an appointment with one of our Commercial Team.

Article written by Judy Wong
Photo by bruce mars on Unsplash