Over the next 7 blogs, I will outline the steps and the things you need to think about when opening a business.
Your Business Structure
Company, trust, partnership, sole trader? Lets examine companies and sole traders.
Pros & cons
Sole Trader:
Pros:
Cheap and easy to start up
Cheaper ongoing as you only need to lodge 1 tax return
No need for workers compensation insurance if you are the only one working in the business
Cons:
Limited options available for tax planning
Limited options available for asset protection (you and your business is a single entity, that is, if the business is getting sued, you are getting sued).
Company:
Pros:
Personal assets are protected from action against the business
More options available for tax planning
If the company goes into debt, generally the creditors can’t recover their debts from its shareholders and directors
Cons:
More expensive to setup and administer each each (2 tax returns to lodge each year)
More paperwork
Generally will need to have workers compensation insurance even though you might be the only employee in the business
Trust:
Pros: 1. If you have a corporate trustee (a company), your personal assets are protected from action against the business 2. Profits from the trust can be distributed to its beneficiaries (In a family trust’s case, usually the named beneficiaries, their kids, grandkids, parents, grand parents and any related entity (provided the correct elections have been made).
Cons: 1. If you have a corporate trustee (a company), your personal assets are protected from action against the business. 2. Profits from the trust can be distributed to its beneficiaries (In a family trust’s case, usually the named beneficiaries, their kids, grandkids, parents, grand parents and any related entity (provided the correct elections have been made)
2. Time to set up
1. Sole Trader: - Basically immediately. Once you register your ABN and GST if required, you are set up
2. Company:
- Usually takes a 1-3 days to set this up
3. Trust:
- Usually takes a 1-3 days to set this up plus another 2-4 weeks to have the trust deed stamped with the OSR