If you want to start a business in Australia, you might want to be aware of the business structures that operate in this region. This will make it easy to for you to choose a business structure that is suitable for you. In Australia, there are four common business structures available. Each of these business structures has their advantages and disadvantages. That is why this articles will discuss each of these business structures that are practiced in Australia. The four common business structures are a Sole trader, partnership, trust, and company.
1. Sole Trader
This type of business structure is convenient for those who want to start a business as an individual. However, when operating as a sole trader, you need to understand that you are responsible for all the legal aspects of your business. This includes any losses and debts that you may experience when running your business. A sole trader is the simplest business structure you can start in Australia. Moreover, it is also the cheapest meaning you do not need a lot of capital to start.
Sole Trader Structure Key Aspects
Besides being easy to start and manage the business, this type of business structure gives you the privilege of controlling all the assets of the business and also make all decision related to the business. Furthermore, you also need to understand that this type of business structure only requires few reporting and allows the business owner to use tax file number for the purpose of tax returns.
A sole trader structure also has unlimited liability. That means all your business assets can be seized to cover the unpaid debt in case thing go wrong. Moreover, you also need to understand that any loss that the business incurs may be considered to be an offset against the revenue earned. However, you also have the privilege of hiring new employees to help manage your business. However, there are certain obligations that the business owner must comply with such as the worker’s compensation insurance and also superannuation contributions.
The partnership is the second type of business structure in Australia. This type of business structure involves more than one person and not more than twenty. This type of structure is easy for most people because all the legal responsibilities are covered by all the partners that are involved. This includes both the loss as well as the debts.
Partnership Structure Key Aspects
Partnership structure is inexpensive and easy to start. However, you also need to understand that this type of business structures requires a separate tax file number. Moreover, if you are operating on an enterprise, you will be required to apply for an Australian business number also known as A partnership structure is not controlled or managed by one person; each partner has the right to contribute to every decision related to the business.
All partners involved in this type of business do not pay income tax from the money earned, but rather all members pay tax according to the share of the net profit. Moreover, for you to complete this process, a tax return must be lodged as required by the Australian Taxation Office also known as ATO Furthermore, if your income turnover is more than seventy-five thousand dollars, you are required to register for GST.
This type of business structure is an obligation that is imposed on an individual as a trustee. This individual is required to hold business assets or property for the sake of other to benefit. The business term used for this individual is beneficiaries.
Trust Structure Key Aspects
This type of business structure is challenging to set up, and it is also expensive. Moreover, trust business structure requires a formal trust deed, which outlines how the structure operates. Furthermore, the trustee is required to undertake formal administrative tasks. If you are planning to operate your business under this structure, you will be held responsible for all the legal operations that are performed within your business. However, you also need to understand that a trustee does not necessarily have to be an individual, but it can be a firm providing asset protection.
When starting a business in Australia, you can consider this type of business structure for quick growth. However, you also need to understand this type of business structure is also considered to be a separate legal entity. What this means is that the firm or company can also incur losses and debt just like a sole trader. Furthermore, a company can also be sued if does not meet all the legal requirements.
This type of business structure is also complex, with high administrative costs and set up. This is caused by additional reporting requirements. Furthermore, when starting a business in Australia under this structure, you are required to register with the ASIC also known as the Australian Securities and Investment Commission. This is to ensure that the company directors and officers comply with all the legal obligations set up under the Corporations Act 2001.
Company Structure Key Aspects
The first thing you need to understand about this type of business structures is that it is considered to be a separate legal entity. Furthermore, it also has limited liability compared to the sole trader, trust, and partnership structure. Most business people in Australia Avoid this particular business structure because it is complex to run and start. That is because it involves a high set up as well as high running costs.
Moreover, you also need to understand that business operations under this structure are controlled by the directors of the company or the shareholders. That is because shareholders and directors are considered to be the main owners of the company. Any business that operates under this structure is required to register for goods and services tax. However, this only applies to those companies that get a GST turnover of more than seventy-five thousand dollars.
These are the four main types of business structures that exist in Australia. Understanding how each of these structures operates will make it easy for you to choose a business structure that is suitable for your business. Moreover, you also have the privilege of changing business structure later on as long as you meet all the legal requirements.