STARTING A BUSINESS

Starting a Business

There is a lot of information to consider when starting a Business.

What business structure suits me?

The following points are just a few issues to consider when selecting a business structure

  • Establishment costs
  • Tax efficient
  • Succession planning
  • Short term vs long term goals
  • Growth
  • Funding options
  • Business risks

Different types of Business structures

Sole Trader

As a sole trader you the individual are the only owner of your business. You will generally make all the decisions about your business, although you can hire staff to assist you in running your business. You are legally responsible for all aspects of the business, such as business income and debts.

This structure is cheap and easy to set up. However it is not flexible and not suitable for a growing business.  Perfect for individuals starting their own business.

A key disadvantage of operating as a sole trader is you have sole liability for your business debts.  Your personal assets (such as your home, vehicles, etc.) may be at risk if you cannot repay your debts.

Partnership

A partnership is an association of two or more people who have agreed to carry out a business. Each partner is an owner of the business and each partner are jointly and severally responsible for the debts of the business. The maximum amount of partners a partnership can have is twenty partners (with some exemptions).

Unlike a sole trader you can combine resources and expertise of a number of partners to run your business. 

A partnership agreement, although not compulsory, is a good idea to have. The agreement should outline how the business is to be controlled, help prevent misunderstandings and disputes and outline what each partners’ entitlements.

Company

The most common structure for business. A company is its own legal entity. Which means a company has the same rights as a natural person,  it can incur debt, sue and be sued.

A company is run by its directors and it is owned by its shareholders. Shareholders are not liable for the company’s debts. Shareholders are only liable up to any amount unpaid on the shares they hold.
 
Profits are distributed to shareholders as dividends. Dividends are taxable to shareholders, however a franking credit may be allocated to offset the tax payable.
 
Directors of a company may be held personal liable, if they fail to meet their legal obligations. Company directors must comply with certain legal obligations under the corporations act 2001.

Trust

An obligation imposed on a trustee to hold property or assets, for the benefit of the beneficiaries.  A trust is a relationship and not a legal entity. Trusts are treated as taxpayer entities for the purposes of tax administration. Profits are distributed to the beneficiaries in accordance to the trust deed.
Trusts separate the control of an asset from the owner of the asset. Which may be useful for protecting the income or assets of beneficiaries. 

A trustee can be an individual or a company.

Trusts can be very flexible for tax purposes. A discretionary trust for example provides flexibility in the distribution of income among beneficiaries. 

Can I change Business structures?

As your business grows, you will need to evaluate your current business structure and possibly change structure. Common reasons to change business structures include;

  • You may decide to take on a additional business partner
  • You may have started/plan to operate in an overseas market
  • Finance business growth
  • Prepare the business for sale. Spin off part of your business that you eventually want to sell
  • Re-organise specific functions, such as revenue, administration and asset holding
  • To merge with another business

Registrations

Ready to start your business? There a a number of registration that you will need to consider/complete, such as;

  • Registering for an Australian Business Number (ABN)
  • Registering for a Tax File Number (TFN)
  • Do I need to register for Good and Services Tax (GST)?
  • Will I have staff employed, do i need to register for Pay as You Go Withholding (PAYGW)
  • Registering Standard Business Reporting (SBR) with the ATO
  • Do I need to register a business name?
  • Will I have an internet presence, do i need to register a website
  • Do I have any intellectual property that i can protect?
  • Am I entitled to any grants or financials assistance?

Key Takeaways

Starting a business is an exciting time. You will finally be the boss, in control of your own success, but there is also great responsibility that comes along with being a business owner.  The points above are the basics to consider, each point on its own can be covered in detail.

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Useful Links

Business.gov.au  – Connecting you to information, grants, registrations and support to help your business succeed in Australia.

business.gov.au