The structure of a building is important for its functionality and durability.
Likewise the structure of a business entity is equally, if not more, important.
How the business operates and is protected, is determined by its structure.
Sky Public Accountants can assist you to understand and decide upon the most suitable business structure for you.

Business operations are constanlty being challenged and influenced by changes in consumers expections, technological disruption and environmental factors. For these and other reasons it may be necessary to change the business structure over time. We can assist you to evolve and grow over time.

A sole trader is the simplest form of business structure and is relatively easy and inexpensive to set up. As a sole trader you will be legally responsible for all aspects of the business. You’ll generally make all the decisions about starting and running your business and you can employ people.

  Simple to set up and operate
  You retain complete control of your assets and business decisions
  Fewer reporting requirements
  Business losses offset against other income (wages)
  Use your individual tax file number (TFN) for tax returns
  Not considered an employee of your own business
  Don’t pay super or workers compensation on drawings
  Easy to change business structure (grow or close)

  All your personal assets are at risk
  Little opportunity for tax planning
  Can’t split profits or losses with family members
  Personally liable to pay tax on all the income
  Limited ability to raise capital

You don’t have to register a business name if you use your own name.
If you choose not to use your own name you will need to register a business name with the Australian Securities and Investments Commission.
You will need to get an Australian Business Number (ABN) before applying to register a business name.
It is free to apply online for an ABN with the Australian Business Register.

Sole traders are taxed as individuals and pay income tax at personal rates.
You will need to register your business for goods and services tax (GST) if your annual turnover is expected to be more than $75,000.
ATO Sole trader tax obligations
ATO information - Individual tax return

A sole trader is responsible for the liabilities of the business.
Liability is unlimited and includes all personal assets, including any assets jointly-owned with another person, such as a house.
You are also not covered by workers’ compensation should you injure yourself at work.
This may result in a loss of income if you cannot work and you may still be required to pay any expenses for your business, such as loan repayments.
Learn more about the various insurances available for your business.

A partnership involves two or more people (up to 20, with some exceptions) going into business together with a view to making a profit.
A general partnership (most common) is where all partners participate to some extent in the day-to-day management of the business and share the risks and rewards.
In Western Australia, partnerships are governed by the Partnership Act 1895

  Simple and inexpensive to set up
  Fewer reporting requirements
  Shared control and management with other partners
  Partner’s share of tax losses may be offset against other income
  Scop for tax planning (income splitting between family members)
  Don’t pay super or workers compensation fpr partners
  Relatively easy to dissolve the partnership or to resign

  Partnership is not a separate legal entity
  Each partner is fully responsible for debts and liabilities
  Potential for disputes over profits and business direction
  Changes of ownership difficult (requires a new partnership)

Before entering into a partnership it is advisable to have a lawyer prepare a formal agreement outlining:
  Each partner’s role and level of authority
  Each partner’s financial contribution
  Procedure for resolving disputes
  Procedure for ending or resigning from the partnership
It is important to have a formal agreement because personal liability is unlimited for each partner.
You will be held liable for any shortfall if the business fails and a partner can’t afford to pay their share of any debts.
You are also jointly responsible for any debts your partner incurs on behalf of the business, with or without your knowledge.
If there is no agreement in place, each partner is deemed to own equal shares of each asset and liability.

A partnership doesn’t pay tax on its income. Instead, each partner pays tax on the share of net partnership income each receives.
ATO Partnership tax obligations
ATO information - Partnership tax return

Partners are responsible for the liabilities of the business. Liability is unlimited.
Therefore adequate insurance is desirable.
Learn more about the various insurances available for your business.

A company is a separate legal entity that can incur debt, sue and be sued.
The company’s shareholders (the owners) can limit their personal liability and are generally not responsible for company debts.
A company is a complex business structure and has high set-up and reporting costs.
A registered company must have at least one director (who is responsible for managing the company’s business activities).

  Limited liability for shareholders
  Well understood and accepted structure
  May be ble to raise significant capital
  Carry forward losses indefinitely to offset against future profits
  Easy to sell and pass on ownership
  Profits can be reinvested in company or paid as dividends

  Significant set-up and maintenance costs
  Do not retain complete control
  Complex reporting requirements
  Can’t distribute losses to its shareholders

The tax requirements for a company are different to those of other business structures.
A company pays income tax on its income (or profits) at the company tax rate.
There is no tax-free threshold for companies and tax is paid on every dollar earned.
ATO Company tax obligations
ATO information - Company tax return

Company officers and directors have legal obligations that specify how they perform their duties and manage the company’s affairs.
These obligations are outlined in the Corporations Act 2001.

ASIC guide for small business directors
ASIC brief guide for small business directors
Corporations Act 2001

Directors are responsible to the shareholders and legal authoriites for the preservation of Company assets.
Therefore adequate insurance is desirable.
Learn more about the various insurances available for your business.

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. A trustee may be an individual or a company.
The trustee is legally liable for the debts of the trust and may use its assets to meet those debts.
However, if there is a shortfall the trustee is responsible for the difference.
A trust is set up through a trust deed and there are two main types: discretionary or unit trusts.
In a discretionary trust, the trustee has discretion in the distribution of funds to each beneficiary.
In a unit trust, the interest in the trust is divided into units with their distribution determined by the number of units held by each member.

  Reduced liability especially if corporate trustee
  Assets are protected in many circumstances
  Flexibility of asset and income distribution

  Can be expensive and complex to establish and administer
  Difficult to dissolve, dismantle, or make changes once established
  Profits reinvested into the business will incur penalty tax rates
  Can’t distribute losses, only profits

A trustee must apply for a tax file number (TFN) and lodge an annual trust return.
The trust is not liable to pay tax. Instead tax is assessed to the trustee or the beneficiaries that are entitled to receive the trust net income.
ATO Trust tax obligations
ATO information - Trust tax return

Directors are responsible to the shareholders and legal authoriites for the preservation of Company assets.
Therefore adequate insurance is desirable.
Learn more about the various insurances available for your business.

Information source, Small Business Development Corporation, Western Australian Government.