Are you planning to start a small business in Australia? If yes, you must first know the different business structures set by the ATO or Australian Taxation Office. These four types are – Sole Trader, Partnership, Company, and Trust. Details of these structures will help you to understand the key differences.
As the name suggests, a sole trader refers to a specific structure run by an individual. It is the cheapest form of business structure. Here, you will be the only owner to have complete control over the business management. And for the same reason, you will be legally responsible for various aspects of the business like losses and debts.
If you recruit workers in your business, you have to pay their super. And, you have to pay your super, too. You can deposit the payment in a specific fund to save for your future.
Key features of a sole trader business are as follows.
In a partnership business, an association or a group of people own a business, and the business income and losses are distributed among themselves. If you and one of your family members or friends decide to run a business together, you can call it a partnership business. It is cheaper to set up a partnership business and operate. Here, business control is also shared among the partners.
It will be better to have a written document of partnership agreement outlining the distribution pattern of income and losses. This can be of great help as it prevents any chance of misunderstandings and disputes. It also helps when it comes to the lodging of tax. Partners can employ workers and are responsible for paying the super for not only themselves but also employees.
Following are the basic features of a partnership business.
Of the business structures in Australia, A company is a legal entity with higher administration costs and setup. The owners of a company are known as stakeholders, and the control remains in the hands of the directors. A company offers some asset protection, and for any actions or debts, the directors stand responsible.
A company structure has the following key features.
In a trust structure, a trustee (maybe a company or an individual) runs the business. It is the trustee that decides how the income will be distributed among the beneficiaries. That is why setting up this business structure is relatively more expensive.
The primary characteristics of trust are as follows.
PSI is different for different business structures in Australia. For both sole trader and partnership, owners can receive the personal services income or PSI if the business accepts the payment for the owner’s efforts and skills. But if the same thing happens for a company or a trust structure, the owner needs to check whether the relevant rules apply.
First of all, you have to consider the specific needs of your business. The other factors that you need to consider are:
If you need professional help when setting up your business, you can seek the assistance of an experienced professional. Palladium Financial Group can emerge as the best resource in such cases and can help you to choose from the different business structures in Australia according to your needs.