Establish Business & Legal Requirements

Yvette Bender

Sole ProprietorPartnershipCompanyTrust

A sole trader is an individual who runs the business without partners or a company structure. The sole trader has full control of the business including ownership of all profits and responsibility for all debts and

Advantages Simple structure You are your business

and make all decisions

Inexpensive to establish and operate

Least reporting requirements

Your losses may be offset against any other income or future earning (over a set amount)

Disadvantages

You are your business – business operates only if you work

You are personally liable for all business debt

You continue to pay tax at personal income tax rates

Fewer options to raise finances may limit your business

SOLE TRADER

Registers an ABNCan choose to register for GST

and pay quarterly

End Of Year

Individual declares

Income - Expenses = Profitto ATO

Tax Paid on Profit only

A partnership involves two or more co-owners participating together in a business. A partner may be an individual or a company and each partner shares in the responsibility and profits of the business.

It isn’t a legal requirement but it is prudent to draw up a partnership agreement. In the absence of this, the law will assume that each partner has an equal share in the business. It is advisable to have a solicitor prepare the partnership agreement

Advantages Inexpensive to establish

and operate Ability to spilt income on

level of ownership Responsibility of the

business is shared Ability to raise finance for

the business is enhanced Capital losses may be

offset by other non-business capital gains derived by the individual owners

Disadvantages Each partner is fully liable

for the full debts of the partnership

There is limited flexibility in distributing profits from property

Any profit made by the business is split into shares for each partner; therefore rendering a credit viable sum of money into a possibly non-credit viable sum

NOTE: If the partnership does not have a Partnership Agreement a court will assume the split was an even share. In the case of a two person partnership - 50% each. A Partnership Agreement is a legal binding document. (it is advisable to have a solicitor to draw it up but does not have to be written by a solicitor or a lawyer so long as it has been signed by both parties and witnessed by a neutral person.

PARTNERSHIP

End Of Year

Partner 1 -50 % Partner 2 - 50%

Partners split all profits from the

year’s turnover and pay personal tax on

each share – regardless of the amount of their yearly drawings

If Partner 2 has a share of 50% of a $40,000 profit

then they have to pay tax on $20,000 ie. 50% of $40,000

Even if their drawings were only $15,000

Partner 1 may have income from other sources, therefore

income from all sources must be added together

and tax paid on the total = Gross Taxable Income

Registers an ABN / GST paid quarterlyRegisters a Tax File Number

Partnership does NOT Pay Tax

Partnership declares

Income - Expenses = Profit

to ATO

with the % split to each partner

A business may operate as a separate legal entity in the form of a company. This is a more complex form of business structure governed by Corporation Law, which covers how a company operates and the duties of the directors.

A business with a proprietary limited company structure is considered as a separate entity from the people running the business. A company structure requires at least one director and one shareholder/member to be appointed. The shareholder(s) provides finance to the company, while the director(s) has serious responsibilities to operate the business according to Corporation Law.

Advantages The company is a separate

legal entity, which may enter into agreements, can be sued, can sue others

Retained profits are taxed at the company income tax rate

Ease in attaining ownership in the company by acquiring shares

Ease of ownership change Continuity of the

company’s existence – not dependent on the owners

Disadvantages Set up, administrative and

operating costs are high Increased statutory

requirements, for taxation and Corporation Law

Revenue and capital losses must be retained by the company – cannot offset owners’ incomes

Individual declares income

to ATO

pays Income Tax

PTY LTD COMPANY

Purchase a shelf companySet up directorship

You become an employee of the company

Company liable for employee entitlements ie: wages, PAYG, super, workers comp

End Of Year

Company declares Income - Expenses =

Profit

to ATO

pays Company Tax on Profit Only

Is only valid for the state it is registered in

Period of registration is 3 yearsCertificate must be displayedRegistered name must appear on all

stationeryTrade Marks are Australia wide and

overrule Business Name Registrations

Trade Practices Act Anticompetitive practices Unconscionable conduct Unfair practices

▪ Product safety▪ Conditions and warranties

Equal OpportunityOccupational Health and Safety