Once you begin seeing a way to make money providing goods and services to others, you are likely to decide that you want to formally declare your intent to run a business. Overall, the size of the business doesn’t matter as much as what you want to accomplish. As you look at the four main types of business that you can declare in Australia, it is also important to consider the kind of support that you can obtain while navigating compliance related issues. Never forget that here at (name) we are ready to help you register your business, and also provide additional supportive services that will truly open up all business type options regardless of the size of your enterprise.
When you designate your business as a sole trader, it means that you can give your name a business, and also open bank accounts under the business name. This makes it easier to separate business transactions from routine household or personal financial transactions. While sole trader designation makes it easier to keep multiple streams of income better organized, there are also some other advantages and disadvantages to consider:
the paperwork for starting a sole trader business is the easiest of business types to register
even though you will have separate bank accounts, your personal assets will be in jeopardy if the business cannot pay it debts or is sued. For example, let’s say you plan to open a small pushcart business selling lemonade and sandwiches. Permits and other regulations aside, you may feel that the limited amount of equipment and inventory do not require a more complex business structure. Now let’s say you do really well with the business, and decide to buy a larger, perhaps less mobile cart that requires a bank loan. If you are not able to pay the loan and its interest, your home and other assets can be taken to satisfy the terms of the loan. By the same token, if someone sues you or other problems come up, it is possible that your personal property will be taken, or liens may be placed on it.
Many people start off with a sole trader designation because they do not have to count themselves as an employee of the company. At first glance, you may feel like this will save you some money on taxes and other subtractions from your pay check. In the long run, however, most sole traders wind up putting themselves on payroll so that they can contribute money to their retirement fund and obtain other benefits associated with a more conventional employment format.
Consider a situation where you and a family member, or even a friend have an interest in landscaping. Let’s also say that you have some ideas about how to divide the work among you so that you can meet the needs of a larger number of potential customers. Instead of starting businesses that compete with each other, you will both be better served by pooling your resources and equipment. Since you will both be key players in the business, it might be to your advantage to declare your business a partnership.
As with sole trader businesses, neither of you will be considered employed by the business, however all partners will be held personally liable for debts, tax issues, and other matters. Even though there is a separate partnership tax levied against the business, each partner will still be responsible for their retirement fund and profit related taxes. Under Australian law, your business can have up to 20 partners, which gives your business plenty of room to grow and expand. Finally, if your business does more than 75,000 worth of business, you must also apply for GST (Goods and Services Tax). GST designation authorizes you to collect an additional 10% of every dollar earned from your clients. This money must then be paid to the tax office on the appropriate collection dates.
A company, or corporation comes with a number of privileges and benefits that you will not get with any other business type. This includes:
your personal assets will not be at risk if the business fails. Even if the company has outstanding debts or other obligations, your personal assets cannot be taken to pay for the company’s lack of funds.
Your personal assets are also safe from seizure if the business is sued and a judgment is made against the company. Unless the lawsuit is made against you personally, and it can be proven that you, and not the business are responsible, there is no way your personal assets can be taken from you.
Corporations are given a special kind of status that makes them separate from individuals in the eyes of the law. Aside from completely separate finances, your business designation also comes with a guarantee that it can continue to exist even if one or more members dies or leaves the business. It is the guarantee of business progression regardless of circumstance that paves the way for the business to sell stocks and raise capital almost as if it is an individual.
Many people dream of the day when they can turn a sole ownership or a partnership into a corporation. As exciting as this may be, the fact remains owning and operating a successful corporation is hard work. Some of this work includes navigating a wide range of complicated guidelines, tax requirements, and other assorted paperwork.
In particular, when you own a corporation, you are eligible to raise money by asking other people to invest in your company. Unlike a loan from a bank, you usually do not pay investors back. Instead, if you make a profit, then the stock holder will receive a dividend, or portion of your profit. Aside from that, if the value of your company increases, then the value of the stock also goes up. From there, an investor may elect to sell your stock to someone else and make a profit on that sale.
As you become more familiar with the vocabulary and nature of investing and stock market trading, you are bound to see why these transactions are so carefully regulated by the Australian government. Globally speaking, when a significant number of businesses fail, it also tends to have a very negative impact on the economy. You have only to look at stock market crashes and declines in other countries to see just how dangerous this situation can be.
Since business failure can occur because of unethical behaviour, credit over extensions and other problems, it should come as no surprise that ASIC (the government agency responsible for overseeing corporations in relation to the stocks) also requires additional filings and paperwork from corporate business owners.
The easiest way to understand the fundamentals of a trust is to think about them on the personal level first. Consider a situation where you are considering who will inherit your home and other assets after you pass on. One or more beneficiaries listed in your will might be minors at the time of your passing. Under these circumstances, it is customary to hold the assets “in trust” by a capable and trustworthy adult until the beneficiary comes of age.
Trusts can also be used by individuals seeking to shield certain assets from a range of liabilities. Let’s say you are having problems with a creditor, relative, neighbour, or someone else that might decide to take you to court and try to win a judgement against you. As long as the trust is in operation long enough, anyone taking you to court will be unable to attach onto those assets.
Insofar as business types, trusts can be owned by individuals, and they can also be owned by businesses. When you set up a trust as a business type, it is important to realize that the company will not conduct conventional business transactions. Instead, it is set up for the sole purpose of protecting certain assets. While you may, under certain circumstances, use the trust as collateral for bidding and licensing, great care must still be taken with how you manage the assets. Remember, once assets are placed in the trust, they may be safe from other kinds of seizure, however you will also be very limited in how you can use them because another party at some point has an interest in what happens to the items.
During the course of operating our own business, we have talked with thousands of potential business owners that want to make the registration process as fast and painless as possible. Knowing what kind of registration options are available is very important both now and in the future. Regardless of whether you decide to set up a sole ownership or partnership in conjunction with a trust, or opt for a corporate structure, we are here and ready to help you get started. Visit (name) today and find out more about our cost effective, streamlined registration options as well as other services that we are more than proud to offer all our clients.