Business Registrations

Business Structures

If you are looking to start a business one thing you must ensure that the business structure is appropriate as per your circumstances. Every structure has its pros and cons that must be considered when deciding an appropriate business structure.

Some key considerations regarding basics structures including Sole-trader, Partnership, Company & Trust are mentioned below.

Please be advised the list below is not exhaustive and you must seek professional advise before the decision.

Sole-Trader Registration

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A sole trader, also known as a sole proprietorship, is a type of business structure where an individual operates and manages a business on their own. Being a sole trader doesn’t mean you have to work alone. You’re still able to hire employees to help you run the business, although you’ll need to make sure you comply with all the relevant legal and tax elements of managing staff, including providing them with workers compensation and super contributions.

Advantages

you will have control over all your business assets and decisions. It gives you the flexibility and freedom to build your business exactly the way you want.
This structure is relatively cheap to set up, which is particularly helpful when you’re starting out.
It’s also easy to change your legal structure down the track if the needs of your business change over time.

Disadvantages

The owner is personally liable for all debts and obligations of the business. In case of financial difficulties or legal issues, personal assets, such as savings, investments, or property, can be at risk to cover business liabilities, potentially jeopardizing the owner’s financial security.

Partnership Registration

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A group of individuals willing to start a business together without the need to setup a legal entity can choose a structure called Partnership. Partners are required to report their share of income from partnerships on their tax returns as individuals and pay tax according to the rate of their tax compliance.

Although partnerships are inherently informal, having a partnership agreement is vital. A contract can clarify the obligations of each partner, as well as the procedure for moving forward should there be any disputes.

Advantages

You will be able to benefit from the expertise, experience network, perspective, and network that a business partner can bring to the table.
Your business partner and you will decide on how the partnership will operate, such as whether the partners are equally involved in business decisions or the one partner is responsible for the entire partnership.

Disadvantages

Partnerships offer no protection for personal assets, exposing owners to unlimited liability for business debts and obligations.
Disagreements among partners can stall progress and hinder efficiency, potentially leading to internal conflicts and business disruptions.

Company Registration

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A company is a legal entity formed by a group of people, known as shareholders, who contribute capital to achieve common business objectives. It is a separate legal entity distinct from its owners, with its own rights, responsibilities, and liabilities.

Advantages

One of the key advantages of operating a business as a company is limited liability. Shareholders’ personal assets are generally protected from the company’s debts and liabilities. This means that in the event of financial difficulties or legal issues, shareholders typically cannot be held personally liable beyond their investment in the company.

Disadvantages

Operating a business as a company typically involves more complex legal and regulatory requirements compared to other business structures. Companies must comply with company law, tax regulations, financial reporting standards, and other legal obligations. Meeting these requirements often requires additional administrative efforts, professional expertise, and ongoing compliance costs.

Trust Registration

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A trust is a legal arrangement in which a person or entity known as trustee holds and manages the assets for the benefit of one or more beneficiaries. The trustee has a fiduciary duty to manage the assets according to the terms of the trust document and in the best interests of the beneficiaries.

Advantages

Trusts are considered to be an effective tax saving structure. The most common way of utilising a family trust as an effective tax structure is to distribute more income to beneficiaries with a lower marginal tax rate because they’ll pay tax at a reduced amount compared to beneficiaries in a higher tax bracket.
Where the property is held for longer than 12 months and is sold at a capital gain, the trust may be eligible for a 50% capital gains tax discount, which can be streamed to the beneficiaries. This may be more beneficial where one of the beneficiaries has a capital loss.

Disadvantages

Establishing and administering a trust can be complex and may involve legal, accounting, and administrative fees. The complexity increases with the type of trust and the assets involved. Trusts often require ongoing management and compliance with legal and tax requirements, which can add to the administrative burden and costs over time.