SiDCOR outlines the 4 ways you can structure your small business
Jun 24, 2019 02:47
Starting your own small business is naturally one of the most exciting yet daunting endeavours you can pursue and will require a great deal of planning to get right. Newcastle accounting firm SiDCOR chartered accountants has outlined some of the most important steps you need to take when deciding on the structure of your new enterprise based on their experience working with thousands of small businesses just like yours.
So, while this is an exciting time for you, it’s also the time where you need to make the big architectural decision about what you want your business to look like a year, 5 years and even 10 years from now. Let’s take a look at some of SiDCOR’s tips for creating the optimal structure for your small business.
SiDCOR: Choose one of the four main small business structures
There are four primary types of legal structure that your business can adopt;
3.Proprietary limited company
4.Proprietary limited company as trustee for a trust
Each of these small business structures has its own advantages and disadvantages that change depending on the circumstances you’re in and what your long-term plans are.
SiDCOR: Setting up as a sole trader
Setting up as a sole trader is the easiest since all you need to get your hands on is an Australian Business Number (ABN). You will pay your personal tax rate on your businesses’ net profit. Reporting your income is also simple as all you need is to submit a profit and loss (P&L) statement as well as send in a tax return that is based on your company’s net profit.
SiDCOR: Setting up a partnership
A partnership is similar to a sole trader in many ways except it is designed for multiple people to run the business together. Up to 20 people can be listed as partners who are jointly running the business and there are two kind of partnerships; general and limited.
Keep in mind; a partnership is not a separate entity – just like a sole trader you will be liable for all debt incurred by the business. Each partner needs to organise their own superannuation payments as you cannot be an employee of your own partnership.
SiDCOR: Setting up a proprietary limited company
This kind of business structure will require you to get an Australian Company Number (ACN), an ABN and to declare a name for your business. This name becomes a separate legal entity to you and this is a very important difference between this structure and others.
Having your business under a separate legal entity has many advantages such as limited liability in the case of bankruptcy or legal action and a company tax rate. With that said, these privileges also come with a greater responsibility in terms of record-keeping and can be more expensive than a sole trader status in terms of tax compliance costs.
SiDCOR: Setting up a proprietary limited company as a trustee for a trust
This is the same as the last structure except with the responsibility of establishing the trust and making sure its accounts are maintained. The trust distributes all of its profits at the end of the financial year and is prohibited from keeping any in the trust.
While the initial cost of setting up a trust is higher, it can give your business much more freedom in how it chooses to generate wealth and maximise tax savings.
When you decide to start your small business, you will need to elect one of the aforementioned legal structures. Hopefully this article has given you a little more insight on each type of structure and their costs/benefits.
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