Learn about getting your business structure right in the time it takes to iron a shirt.
Making sure you set your business up right from the beginning can save you time and money further down the road.
It’ll also avoid unnecessary wrinkles as your success builds. Iron out potential problems before they start with this five-minute read.
One of the very first things you’ll need to do when setting up your business is work out the ownership structure.
You’ll need to decide whether you want to be a sole trader, partnership, a company or a trust. There are pros and cons to each, but setting this up right from the start will save you in the end.
Setting yourself up as a sole trader is the quickest, simplest and least expensive way to get going in business.
It’s a business that has only one owner, but despite the name, a sole trader is still able to employ people.
As a sole trader, you need to make sure you’ve made superannuation arrangements and set up insurances in the case of something unforeseen happening – illness, death or disability, which could affect your ability to generate an income.
To help keep you ahead of the curve, here are some tips on managing life as a freelancer, which you can find here.
If you’re eager to make your future success a shared success, then a partnership of two or more people (up to 20) may be the go for you.
Generally, the nature of a partnership means you share control and responsibility for the business with your partners.
Like a sole trader, a partnership is relatively quick and easy to set up and you and your partners are personally liable for the debts of the business, as well as the profits.
You’ll each need to apply for a separate Tax File Number (TFN) and complete a partnership tax return for the ATO every year.
While the partnership isn’t required to pay income tax as a collective, each individual partner will pay income tax on the income you each receive from the partnership.
The rules for partnerships vary from state to state in Australia, so best to check what that means for you here.
Setting up your new business as a company is a more complex and expensive structure to establish, as you’ll need to meet certain legal and taxation obligations.
But that also comes with some benefits: your new company is its own separate legal entity, which means it can take out debt and enter into contracts.
You’ll need to register your company with the Australian Securities and Investment Commission (ASIC) and be issued an Australian Company Number (ACN) before you receive your ABN. You’ll also need to set up a company bank account to keep track of funds.
Each company must have at least one Director. As a Director of your company, you will need to follow certain legal responsibilities and always act in the best interests of the company. The role and responsibilities of company directors need to be considered carefully. Your accountant or legal advisor will help you understand what’s needed and expected.
Assets that exist in the company name (like buildings, funds or cars) are the legal property of the company; not your own.
All the rules on Directorships exist in the Corporations Act 2001 – a must-read if you are thinking of this structure.
If you decide to run your new business as a trust, you are agreeing to take responsibility for the operation of the business and its assets on behalf of its beneficiaries.
As the trustee, you’ll be required to create a formal deed that outlines your commitments and obligations on behalf of the trust. This is something you should get a lawyer to help you with.
An hour with an expert is crucial
Deciding on the right structure for your new venture is one of the first critical business decisions you’ll make.
Getting the right advice before you register your business could save you time and money later on. Speak with an accountant or solicitor to decide which structure is the right one for your business.
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