Are you still pondering about starting a business?
You may want to learn about the 4 main structures of Australian business. It is worth checking out details about as it will affect a lot of things like documents required for licensing and tax obligations.
The four main structures of a business are:
Sole traders are individuals legally responsible for all aspects of the business.
In Australia, starting a business as a sole trader is the easiest and relatively most inexpensive way. This is because it requires fewer reporting unlike the other three structures. Also, you can still use your individual Tax File Number for tax returns and it does not require a separate bank account. However, you need to keep your financial records for at least 5 years.
You are also called a business owner and you can actually hire employees. As owner, you are entitled to a pay from the distribution of profit earned and it is not considered as ‘wages’ for your tax purposes. You can also contribute towards your own superannuation.
If you hire other people to work for you, then you are obliged to pay payroll tax, superannuation contributions or worker’s compensation insurance.
It is also very easy to change business structure as your business expands however, if the business fails and occur debts, you are personally liable to everything. Your personal assets may be held to pay for debts.
If you do not like the idea of being liable to everything, then consider starting a company.
A company by definition is “a legal entity separate from its shareholders.”
Building a company is more expensive and complex as it involves higher set up and running costs. Companies need to register with the Australian Securities and Investment Commission (ASIC) and follow the Corporations Act of 2001.In addition; you have to register for goods and services tax (GST) if your annual GST turnover is $75,000 and $150,000 for non-profit organizations.
Companies are also required to submit an annual company tax return filed with the Australian Taxation Office (ATO).
As a company, the business is controlled by a director and owned by shareholders. The profit earned belongs to the whole company as well.
Not ready with the idea of turning over control of your business? Or maybe you are not financially ready to set up a company but you want someone to share your vision and responsibilities with, then consider a partnership.
Business partnership is an association of peoples or groups that run a business together but does not belong to a same company.
You can strike a partnership with another sole trader business or with up to 20 more people and share everything with them from liabilities to profit shares as long as your partnership abides the Partnerships Act of 1958.
Partnerships are also relatively easy and low cost. Unlike companies you and your partner(s) have shared control of the business. Also, unlike sole traders, you and your partner share the liabilities that the business may incur. You and all your partners are responsible for each of your own superannuation since you are all owners and not employees. Moreover, your income tax would also come from the share of net partnership income.
On the other hand, you need to set up a separate TFN and you have an option to register for an Australian Business Number (ABN) if you are carrying an enterprise. There is also an annual Partnership tax with ATO and GST registration if your annual turnover reached $75,000.
A trust is a little bit more complicated and expensive than the three others.
It is “a legal obligation imposed on a person – a trustee- to hold property or assets (such as business assets) for the benefit of others, known as beneficiaries.”
A formal trust deed is needed to serve as operation guide. The chosen trustee – an individual or a company- is also required to have a formal administrative task annually.
A trust also needs to have a separate TFN that reflects all income, deduction nd distributions made. It must also have its own ABN and GST. It may also pay superannuation for its employees.
Beneficiaries may be liable to make Pay As You Go (PAYG) installments on each distribution received.
Now that you have an idea about the four business structures in Australia, choose one that best suit your business need.
Learn more about them here.
Good luck on your future endeavors and happy business planning!