If you wish to register a company in Australia, you’ll have to set some prerequisites in order:
- What is the proposed structure of your business?
- How will you name it?
- How do you plan to govern its activities?
- Have you designated office-holders?
- Do you have a written consent from them to start your company?
This article gives you insight into the first point, viz., the structure. Your business structure is one of the first decisions you must take. It determines, among other things, your set-up costs, degree of control, tax rates, debt liability, and ease of raising capital. The following four are the most prevalent structures in Australia.
Who owns the business: As the name suggests, a single individual owns the entire company and its income.
How will you pay taxes: As the company’s income belongs to the owner, they pay income tax at an individual rate. The business earnings are not subject to higher tax rates in most cases. So, you do not need a separate tax file number or a fresh bank account for the firm.
Who controls the business: You have full control over the company and will be responsible for its gains and losses.
Who bears the debt burden: If in the unfortunate event that you face losses and owe people money, you will bear the entire debt burden. As there are no limited-liability clauses to protect you, your personal property can be liquidated to meet obligations.
What about employee benefits: You are responsible for your employees. You must pay them at least the minimum wages and offer them sufficient leave and superannuation.
Who owns the business: You and your partner/s share the ownership and responsibilities. By default, the share is equally distributed among partners. If you choose to have unequal shares in the business, you will have to pen down a partnership agreement to that effect.
How will you pay taxes: As in a sole tradership, each of the partner pays an income tax on their respective individual income shares from the business. Although you do not have to pay additional taxes as a partnership, you still have to lodge a partnership return with the Australian Tax Office annually. Therefore, you will need to open and maintain a dedicated bank account. Upon registration as a partnership, the ATO authorities will automatically assign a tax file number (TFN) to you.
Who controls the business: You and your partners have control concomitant with your respective shares.
Who bears the debt burden: Just as in individual ownership, you and your partners will face the risk of losing your personal assets if you have outstanding obligations in the event of closure.
You can also opt for a limited liability partnership based on the rule prevalent in your state. Here the partners are not equally liable. There is at least one general partner and one limited partner. The former handles the day-to-day activities of the firm and takes on an unlimited burden of debt liability. The limited partner does not participate in everyday decision-making and bears a limited debt burden proportionate to their share.
Who owns the business: A company is owned by shareholders and run by the directors. A company can be proprietary (pty) or public. The latter can raise capital by selling shares, while the former can’t.
Once you register a company under the Corporations Act 2001 with the ASIC, it gets a status of a legal entity. Thus. it can incur debt; it can sue and be sued in a court of law. A company is generally represented by its office bearers – such as the director – who are legally obliged to perform certain duties on behalf of it.
How will you pay taxes: The Company owns its income and losses, and therefore it has to file taxes at a company tax rate.
Who controls the business: The director is in charge of day-to-day decision-making in a company.
Who bears the debt burden: If you have set up a limited liability company, neither the directors nor the shareholders are fully liable to repay the company’s debts. Your private assets stay relatively insulated from having to fulfill the company’s obligations.
Who owns the business: A trust is generally set up for the efficient management of funds on behalf of a beneficiary. A trustee (an individual or a company) oversees the trust’s management. It is not a legal entity like a company but needs a separate TFN and bank account nevertheless.
How will you pay taxes: If you are a trustee, you must lodge a trust tax return annually. Additionally, you may also have some tax liabilities. Beneficiaries who receive some share of the trust’s earnings will file individual income taxes.
Who controls the business: The trustee controls its management, tax filing, income distribution, and managing debt repayment.
Who bears the debt burden: The trustee is personally liable but can be entitled to be compensated for any payments made out of his pocket.
Before you register a company either on your own or with the help of services, take some time to understand the nature of your business and which structure would suit it the best.
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