If you are starting your business, it is of paramount importance to select a structure that best suits to you. Before you even begin to search for your business, you need to know how different types of business structures are owned and managed at the top level. As business structures affect your taxation requirements, legal liabilities, licenses, ongoing costs, asset protection, capital, and management requirements, you’ll want to make sure that you’ve got the right structure for your needs. Business registration service providers can help you choosing the right structure.
In order to choose the right structure, you need to understand the advantages and limitations of each structure such as tax liabilities, responsibilities as a business owner, potential personal liability, asset protection, and ongoing costs and the volume of required paperwork
A sole trader is an individual trading on their own. It is the easiest form of business structure, which is simple to set up and cost effective but a sole trader is responsible for all aspects of a business and there are no limits on the liability. You may register a business name with ASIC or you can simply operate under your own name but you must have to have a Australian Business Number (ABN).
A partnership is an association of people or entities carrying on a business together but not as a company. A partnership is not a separate legal entity and hence all the partners have unlimited liability for the debts and obligations. Partners usually agree to contribute money, labor or skills to the business and share the profits and losses arising there from and also share business management responsibilities. It is good to have a formal partnership agreement to avoid any inconvenience in future, however it is not mandatory. A partnership has its own Tax File Number (TFN) and Australian Business Number (ABN) and files its own, separate tax return. A tax accountant hobart helps you in completing all the taxation formalities involved in the process.
A company is a separate legal entity from a person and it can incur debt, sue and be sued. The company’s owners (‘shareholders’) can limit their personal liability and are generally not liable for company debts. Proprietary companies have no more than 50 non-employee shareholders and they don’t typically offer shares to the public. Such company must have at least one shareholder and one director who lives in Australia. Public companies can have over 50 non-employee shareholders and be listed on the stock exchange. A company’s Australian Company Number (ACN) is a unique, nine-digit number issued by ASIC that provides identification to the company. It’s a legally mandatory to display ACN on certain documents. . Companies are required to lodge annual company tax returns detailing the company’s income, deductions and income tax.
A trust is a business structure where a trustee carries out the business on behalf of members of the trust (or beneficiaries). Unlike company, a trust is not a separate legal entity and the trustee is legally liable for the debts of the trust and may use its assets to meet those debts. It is required to have a written deed and completing certain administrative tasks for the formulation of a trust. A trust should have its own Tax File Number (TFN) and also entitle to an Australian Business Number (ABN) if the trust is carrying on an enterprise.
It is always recommended to seek assistance from professionals to avoid complexity.