Business Structures Are Important To Get Right From The Start
Business Structures are part of your business plan, which if you don’t have you should call immediately to talk. When you start a business without a plan it’s like building a house without a blueprint. Your headed toward disaster and failure.
What business structures are available?
Below I have listed 4 of the most commonly used business structure in Australia. I have linked them to the official ATO definitions. And I have also given our own take on these below.
How do I choose my business structure?
So the following will be a factor when deciding what the best business structure is for your business:
- The type of business you operate;
- The regulatory restrictions that are in your industry;
- The income level that your business earns;
- Exposure to litigation you have to the general public;
- Level of assets you have;
- Whether you are operating a lifestyle business (<$1 million in sales) or preparing to scale (>$1 million in sales);
- The salability of your business.
What Is The Cost Of Each Of The Business Structures?
The best approach is to call us here at Conqa and speak to someone regarding your current situation. As you can imagine, no business is the same and no individual circumstances should be generalized.
What is a Company?
Companies are a certain legal structure that is governed by special rules outlined by both ASIC and that company’s own Constitution. However, Companies, by law, can sue and be sued in the same way as a living, breathing human.
Operating a business through a company structure is very popular. And this is because it usually allows for certain assets of the owner to be protected to some degree.
Finally, a company structure is also popular due to its flat rate of tax. Depending on what you are using your company for, the Income Tax Rate is between 27.5% – 30%.
Like everything, there are costs that coincide with the benefits.
One particular cost is that companies are unable to qualify for the 50% Discount Method for Capital Gains Tax.
Some small business owners struggle with is taking money out of a company. There are only a few of ways that an owner can extract money out of a company. Those are via a ‘Salary or Wage’, a ‘Dividend’ or a ‘Loan’.
There are special rules with loans which can develop into complicated situations if the right advice is not sought by the business owner.
What is a Trust?
There are many different types of Trusts. However, the Discretionary Trust, otherwise known as a Family Trust is the most common.
If you are operating a small business and you have a trust within your structure, you most probably have a Discretionary Trust.
Discretionary Trusts are great for Asset Protection if set up correctly. For example discretionary trusts also allow for profit to be distributed more flexibly. This will assist with lowering marginal tax implications for the small business owner and their family.
The Sole Trader Structure Is Not Recommended
Although it’s cheap and simple, it has its risks. Above all, if you choose to operate as a Sole Trader, you have to understand that any assets you own personally such as your main residence, are exposed to legal action.
Most importantly if the Sole Trader has a large amount of taxable income, they are assessed and liable to pay the income tax. These along with other various taxes such as GST & PAYG Withholding for the Sole Trader’s employees.
At Conqa Business I am here to help you from the start. I want to be your Small Business Accountant.