Operate your business to its fullest under the right legal structure
There are four main types of legal structure businesses operate as in Australia. Depending on the type of business you run, we will advise you on the right legal structure.
As your business grows or changes you may need to review or change your legal structure. As your accountant, we would let you know. Additionally, we make sure you are using your legal structure to its fullest advantage.
The four types of legal structures are:
- Sole Trader
The simplest type legal structure is a sole trader. Relatively low cost a sole trader can use their individual Tax File Number (TFN) and bank account to operate. An Australian Business Number (ABN) may also be required. This legal structure holds the individual operating the business completely responsible for all aspects of the business. Including paying superannuation and tax on any income. This also means that if something should go wrong, your personal assets are at risk.
Running a business in partnership with two or more people means you share control and personal responsibility of the business. This includes any income and losses. It requires its own Tax File Number (TFN) and may also need an Australian Business Number (ABN). Lodging a partnership tax return is also required. Each partner is responsible for paying tax on the income they have received as well as their own superannuation.
Companies are the largest and fastest growing type of legal structure. Depending on the type of business have, we may encourage you to operate as a company. This is to provide you with greater asset protection that comes with a company structure. Factors we may consider; if you employ people, work in a high-risk industry or need more elaborate tax planning.
A company is a separate entity and has limited liability. Which means the company takes all the responsibility like an individual does in sole trader and partnership structures. This includes debt. To operate a company structure you must also select shareholders.
Companies require their own Tax File Number (TFN) and registration with the Australian Securities and Investments Commission (ASIC). ASIC will then issue an Australian Company Number (ACN). It is important that you are aware and keep up to date with your ASIC obligations. As companies are governed under the Corporations Act 2001.
Operating a business as a trust structure provides additional flexibility. There are various types of trusts with the most common being discretionary or family trusts. Trusts require a trust deed to be prepared, which our Legal department can take care of. A trust structure provides additional flexibility and asset protection. Whereby the trustee of the trust, whether corporate or an individual, holds property or assets for the benefit of its beneficiaries. A Tax File Number (TFN) and Australian Business Number (ABN) are additional registrations for trust structures.
Registering for Goods and Services Tax (GST)
Businesses of any legal structure that turnover more than $75,000, need to register for Goods and Services Tax (GST). Unless they are a Not-for-Profit Organisation, in which it is $150,000.
If a business has employees there are certain obligations. Businesses will need to be registered for Pay As You Go withholding (PAYG withholding) and pay superannuation for employees. You may also have additional taxes to pay. Such as Fringe Benefits Tax (FBT) and payroll tax if wages go over certain amount.