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What is the right structure for your business

The structure you choose may affect:

  • the tax you are liable to pay now
  • the amount of tax you pay when you sell or wind up your business
  • asset protection
  • ongoing costs

Whichever structure you choose, make sure you understand the responsibilities that go with that structure. Typically, costs and complexity increase as you move from a sole trader to a partnership to a company or trust.

You are not locked into any structure and you can change the structure as your business changes or grows.

If you aren’t sure which structure to choose, talk to an accountant, tax adviser, solicitor or other business adviser.

Considering a franchise Buying a franchise is becoming an increasingly popular way to operate a business. A franchisor grants, under certain conditions, the right to use a business brand name or trademark and the right to produce or distribute the franchisor’s product or service. A franchisee is someone who receives the grant of the franchise, usually by paying a fee to the franchisor. You can operate a franchise as a sole trader, partnership, company or trust.

Sole trader

A sole trader is the simplest business structure. The structure is inexpensive to set up because there are few legal and tax formalities.

If you operate your business as a sole trader, you trade on your own and control and manage the business. You are legally responsible for all aspects of the business – debts and losses cannot be shared.

Knowing the main features of a sole trader business structure may help you decide if this structure is best for your business.

Partnership

For tax purposes, a partnership is an association of people who carry on a business as partners or receive income jointly. A partnership is relatively inexpensive to set up and operate. A formal partnership agreement is common, but not essential.

If you operate your business as a partnership, control or management of the business is shared. Income and losses are shared among the partners. Each partner is responsible for the debts of the partnership, even if you did not directly incur or cause the debt.

Knowing the main features of a partnership business structure may help you decide if this structure is best for your business.

Company

An incorporated company is a distinct legal entity, regulated by the Australian Securities & Investments Commission (ASIC).

A company is a complex business structure, with higher set-up costs and administrative costs because of additional reporting requirements.

A company’s operations are controlled by its directors and the company is owned by its shareholders. A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.

Knowing the main features of a company business structure may help you decide if this structure is best for your business.

Trust

A trust is an obligation imposed on a person – a trustee – to hold property or assets (such as business assets) for the benefit of others. These others are known as beneficiaries.

Setting up a trust can be expensive, as a formal deed is required and there are formal yearly administrative tasks for the trustee to undertake. A trust deed outlines how the trust is to operate.

If you operate your business as a trust, the trustee is legally responsible for its operations. A trustee of a trust can be a company, providing some asset protection.

Knowing the main features of a trust business structure may help you decide if this structure is best for your business.

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