Important: You should seek professional advice before deciding on your business structure because people have different personal circumstances and business objectives. Contact CPA Business Solutions today for a first hour Free consultation on your business structure.
The four main business structures are:
Sole trader
A sole trader is the simplest and relatively inexpensive business structure that you can choose when starting a business in Australia. It gives you full control of your assets and business decisions and requires fewer reporting requirements and is generally a low-cost structure. It allows you to use your personal TFN to lodge tax returns. It doesn't require a separate business bank account and you must keep the financial records for 5 years.
However a sole trader has unlimited liability which put all your personal assets are at risk if things go wrong. Another disadvantage is you can't split business profits or losses made with family members and you're personally liable to pay tax on all the income derived.
Company
A company is a separate legal entity which has the same rights as a natural person and can incur debt, sue and be sued. The company’s owners (the shareholders) can limit their personal liability and are generally not liable for company debts.
A company is a more complex business structure to start and run and involves higher set up and running costs than other structures. Company require a separate bank account from individuals. The money the business earns belongs to the company and current tax rate for small business is 28.5%.
Partnership
A partnership involves a number of people who carry on a business together. It's relatively easy and inexpensive to set up. A partnership is not a separate entity and your business partners are personally liable for the debts of the business.
You have shared control and management of the business with your partners. The partnerships don’t pay income tax on the income earned. You and each of your partners pay tax on the share of the net partnership income you each receive.
Trust
A trust is an obligation imposed on a person - a trustee - to hold property or assets for beneficiaries. It requires a formal trust deed that outlines how the trust operates.
In Australia, family trust is one of most popular business structure as it provides the both asset protection and profits split to family members.
