Business restructure, Geelong

Choosing the right business structure is a crucial decision when you are starting out with a new enterprise. The business structure you choose is central to asset protection, your taxation liabilities, ongoing costs and the minimisation of any future liabilities. Our accountants in Geelong will discuss the benefits, pitfalls and responsibilities that go with the various structures – sole trader, partnership, trust or company. There are costs and risks with each legal structure and they are all quite different.

Business structuring

Sole trader

A sole trade is the most simple business structure. There are few expenses when it comes to setting up as a sole trader as there are few legal and tax formalities or requirements.

The business can trade under your own name or a registered business name.

For taxation purposes, all income that is made from the business is treated as your own and tax is paid at the same rate as individual tax payers.

The negatives of the sole trader structure include the fact that legally, you have unlimited personal liability, and it can often be more difficult to raise finance.

Partnership

Like a sole trader, a partnership is relatively easy and inexpensive to set up and operate. A partnership involves an association of people who jointly carry on a business as partners, or receive income as partners.

The formality of a partnership agreement can range from a verbal agreement to a detailed written agreement that structures the relationship between the partners in a way which best suits the business. You can establish the shares of profits or losses each partner will take, the responsibilities of each partner and what will happen if partners are to leave or new partners are introduced to the partnership. Each partner is liable to pay tax on their share of the net partnership income.

The negative aspects of the partnership agreement include a limit on the size of the partnership and the fact that each partner is liable for any debts incurred even if they did not incur the debt themselves.

Trust

A trust is created for a variety of reasons. These include tax savings, improved asset management and the provision of assets or income for beneficiaries of that trust.

There are a number of types of trusts, including a family trust or discretionary trust. These are similar to a company and are often set up with a company acting as the trustee. An ABN and TFN will need to be set up in the name of the trust. The advantage of a trust is that it limits liability for the trustees and beneficiaries, it is more private than a company and it provides more flexibility in determining when and where income is distributed. They are inexpensive to set up and run, however there are complex legal and compliance requirements that are required to be met.

Company

A company is a registered legal entity that trades in its own right. It consists of shareholders who invest in the start up of the business and directors who are individuals appointed by the company to run it. Profits are distributed amongst the shareholders or reinvested back into the company. The entity is regulated by the Australian Securities & Investments Commission (ASIC). The structure of a company is complex, and as a result it has higher set-up costs. Additional reporting requirements also add to administrative costs involved in this business structure.

The biggest plus of the company structure is that liability is limited to the assets of the company. Individual shareholders and directors are not liable for any debts incurred, however there are occasions where directors will be asked to give personal guarantees to cover any debts.

There are substantial taxation implications involved in the company structure as well. CD&G Accountants are well equipped to advise you on the tax and GST implications that arise and what your obligations are.

When starting up a business or starting up a small business, we would look at the number of people involved in the enterprise, whether you will be hiring staff or looking to involve other partners, what kind of business you are starting, the amount of income it will bring in and the plans for growth. When structuring your business each of these factors will play a part in determining which structure is the best for your business.

Restructuring a business

If you have an established business that has outgrown it’s current structure, is suffering cash flow or profitability issues, or you are looking to join an existing business, you may consider undertaking business restructuring. For many organisations in and around Geelong, business restructure can mean the stabilisation of your business and allow for sustainable growth and profitability.

Whether business structuring or business restructuring, Geelong companies and organisations can rely on the expert advice and direction of the experienced team at CD&G Accountants.