There are four main legal structures businesses operate as in Australia and 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 structure. If we feel this is something you should consider we will let you know and make sure you are using your legal structure to its fullest advantage.
The four types of legal structures are:
- Sole Trader
A sole trader is the simplest type legal structure, you can use your individual Tax File Number (TFN) and bank account to operate and is relatively low cost. A sole trader may also be required to have an Australian Business Number (ABN). A sole trader 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 including any income and losses. It requires its own Tax File Number (TFN) and may also need an Australian Business Number (ABN). A partnership requires a partnership tax return to be lodged and 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 you operate, if you employ people, work in a high-risk industry or need more elaborate tax planning, we may encourage you to provide yourself with greater asset protection that comes with a company structure. 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 including debt. A company is required to have its own Tax File Number (TFN), register with the Australian Securities and Investments Commission (ASIC) and be issued with an Australian Company Number (ACN) by ASIC. 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. You must then select the shareholders of the company.
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. A trust requires 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 trust is required to register its own Tax File Number (TFN) and Australian Business Number (ABN).
If business of any legal structure has a turnover more than $75,000 it is also required 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 it has an obligation to register for Pay As You Go withholding (PAYG withholding) and pay superannuation for employees. You may have additional taxes to pay such a Fringe Benefits Tax (FBT) and payroll tax if wages go over certain amount.