Establishing your own business is just the first step. Being in business means you also have to find creative and innovative ways to develop products, enhance your productivity, refine your services, and more. Another side to this immense establishment is to be familiar of the legal repercussions involved in operating your business.
One of the common legalities that many accounting firms in Sydney emphasise is the adaption of the right business structure that is apt for your business’ nature and future goals. You also have to be familiar with taxation and all the rules that come with it. In this article, we’ll give you a quick glimpse on both.
What Is a Business Structure?
Building a business requires more than just the hours and the resources to pull it off. You also need an extensive knowledge on the business structures that are legally existent in the country right now. A business’ structure will highly depend on the size and type of business you are operating. You also need to consider the methods in which you want to run your business.
In Australia, there are four main structures namely Sole Trader, Partnership, Company, and Trust. Each one is appropriate for specific types of businesses and operations. For instance, many up-and-coming businesses start off as Sole Traders since it has the cheapest and simplest structure.
On the other hand, Trusts are typically managed and supervised by multiple stakeholders who determine how the trust funds are going to be acquired and expended. With their broad scope, trusts usually require fund managers to handle their funds and other operations. Here is a deeper look into each of the business structures here in Australia:
- Sole Trader
As mentioned, Sole Trader is the cheapest and simplest business structure. As the name would suggest, being a Sole Trader means that you are legally responsible for all aspects of your business including debts, expenses, and other daily business decisions. You do have full control, but you are also liable for all the other aspects of the business. - Partnership
This type of business structure involves 2 or more people who distribute both income and losses among themselves. The three main types of partnerships are general, limited, and incorporated. Each has its own clause as to how the partnership works. The great thing about partnerships is that the burden is equally distributed among the partners. So, if you incur debt, for instance, payment of the debt is divided accordingly. - Company
Unlike Sole Trader and Partnership, a company business structure is a separate legal entity that can incur debt, sue, and be sued. If you are a shareholder, you are not liable for your company’s debts, but you might be asked to turn in shares if the need arises. However, if any member is found to be in breach of his legal obligations, then they can be held personally liable.
Thus far, companies are quite complicated to set up. This business structure is also expensive to set up. So, make sure that you are absolutely qualified to be a company if you choose this as a business structure.
- Trust
This business structure involves a person (trustee) holding properties or assets for the benefit of others, more commonly known as beneficiaries. Trust structures are also complicated to set up and often requires a formal trust deed that outlines how the trust operates and trained trustees to run the business.
Why Is It Important?
Your business structure can determine the licenses you require, how much tax you should pay, your position in the company, your potential personal liability, your overall scope and control over the business, ongoing costs, and volume of paper work for your business.
Mitigate Your Risk
Businesses are often vulnerable to unforeseen events that can make or break its financial trajectory. By choosing the appropriate business structure, you protect yourself from the uncertainties that can cost you your assets and your business. If you started out as a sole trader, for instance, you might want to consider updating your business structure to a company if your business has since grown.
Of course, you have to factor in multiple considerations like the size of your company, your reach, projected sales, etc. All these can be overwhelming, so you might want to look into working with the top accounting firms in Sydney or any other accountant near you.
Doing so will immensely help your business be on the path that it has to be to maximise its potential growth. Outsourced accounting in Sydney is also not a bad choice if you are just starting out and don’t have a dedicated accounting team yet.
Save on Taxes
You can save thousands of dollars in tax with the right structure. Australia’s income tax legislations have numerous rules but, in a nutshell, you can be taxed at marginal rates of 0% and 40% if you are operating under individual business structure (sole trader and partnership) while you can be taxed between 27.5% to 30% or lower if you are a company. Trusts, on the other hand, are taxed depending on the beneficiaries’ entitlement to the income.
At face value, it would seem like going as a company or a trust would save you more, but you should realize that not all businesses are qualified to adapt those business structure. Make sure to talk to an expert like an accountant in Mascot or any other accounting professionals in your area.
Other Things to Consider
Taxation is an incredibly complex subject that a lot of business owners should take the time to be familiar with. For instance, the other factors that will come into play when it comes to determining your tax rate is your taxable income and capital gains. These will vary widely among industries, which is why talking to accounting firms in Sydney or to the one of the best tax agent in Sydney will surely help.
Drive your business in the right direction. Partner with Practical Accountants today!
There are numerous accounting firms in Sydney that can handle your choice of business structure and taxation, so choose wisely. Practical Accountants houses a team of expert accountants and tax agents in Sydney who are seasoned for any tax-related concerns you might have.
For solutions that work, contact Practical Accountants today.
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