BUSINESS STRUCTURING & REGISTRATION

Setting up a new business

If you are starting a small business, you need to choose a structure that best suits your business needs. It’s important to understand the responsibilities of each structure because the structure you choose may affect:

  • Tax liabilities
  • Responsibilities as a business owner
  • Potential personal liability
  • Asset protection
  • Ongoing costs and the volume of required paperwork

We are experienced in assessing a business structure that best suit your need and the subsequent business registration. Before deciding which business structure to use, please seek advice from us first. The right advice at right time could save your time and money.

The most common business structures include: 

Sole trader

A sole trader is the simplest form of business structure and it is relatively easy to set up because there are few legal and tax formalities. As a sole trader you will be legally responsible for all aspects of the business, including any debts and losses, and there are no limits on this liability.

You do not need to register a business name with ASIC unless you are conducting business under a name other than your personal name.

You can use your individual Tax File Number (TFN) when lodging your income tax return.

Partnership

A partnership is two or more people or entities who distribute income or losses between themselves. The most common type of partnership entered into by small business owners is a general partnership. A partnership is not a separate legal entity so all partners are equally responsible for the management of the business, and each has unlimited liability for the debts and obligations it may incur. A formal partnership agreement is common, but not essential. If there is no agreement in place, each partner is deemed to own equal shares of each asset.

If you’re operating under your own personal names, there is no need to register, but you must register a business name if you have one.

A partnership has its own Tax File Number (TFN), and usually an Australian Business Number (ABN) and lodges its own, separate tax return.

Company

A company is a separate legal entity and 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.

A company is a complex business structure, with higher set-up and reporting costs. Companies must be registered with ASIC, and be incorporated under the Corporations Act.

A company’s Australian Company Number (ACN) is a unique, nine-digit number issued by ASIC that offers identification while transacting business. It’s a legal requirement to display ACN on certain documents.

Trust

A trust is a structure where a trustee carries out the business on behalf of the trust’s members (or beneficiaries). A trust is not a separate legal entity. The trustee is legally liable for the debts of the trust and may use its assets to meet those debts.

Setting up a trust requires a formal deed, as well as the completion of yearly administrative tasks. Trading trusts are a complex and expensive business structure and are subject to higher compliance costs. However, using a trust structure for your business may have tax advantages.

A trustee can be a company registered with ASIC. If the trust does business under a name other than its own, that name must be registered as a business name with ASIC.

A trust must have its own Tax File Number (TFN) to use when lodging its annual tax return.

If the trust is carrying on an enterprise in Australia, the trustee must register for an Australian Business Number (ABN) for the trust.