When setting up your small business, it’s important to familiarise yourself with the necessary checkpoints including choosing a business structure, registering your business name, and developing your business plan. We set out what questions you should first ask to ensure your chances of your business running smoothly.
Have you chosen a Business Structure?
What business structure you choose, whether it’s a sole trader, partnership or company, largely depends on your business goals. It’s important that you understand the legal and tax obligations involved with each before making a decision. Each structure is briefly explained below.
Sole trader: This structure is the simplest and easiest to set up. It doesn’t create a separate legal entity through which to run your business, so you as an individual are liable for the business’ debts. However, this exposes your personal assets to creditors and any income you earn is taxed as personal income.
Partnership: If you a starting a business with one or more other people as a partnership, you will first need to arrange a partnership agreement. This legal document sets how you will share the profits, risks and losses of the business, according to terms contained in the agreement. It’s then critical you seek legal advice before entering into a partnership to draft and review your contract. Importantly, partners are not taxed as a whole and each partner is taxed on their profits at the same rate as personal income and liable for the partnership’s debts.
Company: If you anticipate rapid growth and expansion of your business, it may be preferable to incorporate your business at the outset. Establishing a company creates a separate legal entity meaning the company’s directors are not personally liable for any debts incurred and the business is taxed at a flat rate. The company tax rate is currently 30%.
Trust: You can also run a business through a trust, which involves a third party being in control of the assets and business operations, and transfers the profits to a beneficiary. This structure is most common for family businesses.
Have you Registered your Business?
The types of business registration required will depend on which structure you choose. Every new business needs to apply for an ABN (Australian Business Name) and register their business name.
If you’re a sole trader, you can use your personal, existing Tax File Number for your business activities. If you’re running a business as a partnership, company or a trust, you will need to apply for a new TFN.
If your business has an annual turnover of over $75,000, you must register for GST (Goods and Services Tax).
Depending on what structure your choose, the types of business registration you will be required to do will differ. Generally every new business will need to apply for an ABN and register their business name.
Familiarising yourself with these fundamentals will help with setting up your business, however, you should seek legal advice to understand what structure best suits your business needs. If you have any questions, LegalVision’s business structuring specialists can assist you and help draft the legal documents you’ll need to set up a partnership, company or trust.
Thank you to Guest Writer Anthony Lieu from LegalVision
This article was featured in our May Edition of Paeds Biz. Read our latest issue here.