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Business Structure Advice - Sole Trader, Company, Partnership or Trust ?

It is critical that your existing or proposed business structure is the most tax efficient from start-up to its eventual sale. Your selected business structure will determine how much tax you pay, what you can do with the profits and your personal liability if business does not go according to plan. Circumstances change over time and their effects require professional monitoring and management. Whether to fly solo as a sole trader, set up or acquire a company, go into partnership or establish a discretionary trust are decisions that your LBW partner can assist you with. An obligation free consultation with an LBW Partner will ensure that the route you take is well considered and in the long term is beneficial to your business, its stakeholders and your family.

The significant effects your business structure decision will determine include:

  • Your initial set up costs.
  • Your ongoing paperwork and administration overheads.
  • The distribution of profits to your partners, family members or others.
  • The amount of tax you will be required to pay.
  • Your business and personal tax planning options.
  • Your personal liabilities and exposure to business debts.
  • The ease of selling your business or making changes to its ownership.
  • What happens to your business if you decide to leave.

Contact an LBW accountant today via e-mail, phone (+61 2) 9411 4866 or complete the on-line enquiry right now. Receive the business accounting, tax advice and business structure guidance essential for your success and prosperity.

Before you commit to any business structure, get the facts from your LBW business accountant. You will receive unbiased advice and practical explanations of whether your best option is to operate as a sole trader, partnership, company or trust. A independent LBW accountant familiar with the operations, liabilities and advantages of every business structure will ensure you avoid any costly mistakes.

Here is an overview of the four most popular and traditional business structure options you should consider:

Becoming a Sole Trader

As a sole trader, you are extensively the business, you can trade in your own name or alternatively register a business name (with the Department of Fair Trading) if you prefer. You will also need to register for an Australian Business Number (ABN) on the Australian Business Register and register for GST if you anticipate your business will turn over more than $70,000 a year, once registered you will automatically be required to complete Business Activity Statements (BAS).

Whilst it is the least complex structure to set up and operate, simplicity comes at the cost of inflexibility, including any effective tax planning. As a sole trader the ATO treats your business profits as your personal income, therefore you pay income tax on them using your own tax returns. What is more you are completely responsible for all your business' liabilities, debts, employee and third party claims. As a sole trader It can be harder to get personal or business finance, and it can be difficult to change ownership should you ever want to sell your business.

Going into Partnership

A partnership is not a separate legal entity and therefore does not pay tax. Business profits are distributed among the partners, tax is paid by you and your partners in their own individual tax returns, although a partnership does need to have a tax file number and lodge a return. In a partnership, all partners own the business and it's assets jointly and regardless of the number of partners there are in your business they are all equally responsible for the business's debts. Even if you own just 10% of the partnership, you are personally responsible for 100% of its debts (as are all your other partners).

Going into partnership can have some advantages over being a sole trader as you are more likely to be eligible for finance. The requirements for an ABN and GST registration are ostensibly the same as being a sole trader. Unlike operating as a company, as a business partner your rights are governed by the Partnership Act together with the one essential element in any joint business venture, a professionally prepared and legally binding partnership agreement.

Forming a Proprietary Limited Company

Unlike a partnership a company establishes a separate legal entity, by itself the company can limit your personal liability for business debts and legal responsibilities. As a director of your company your personal exposure is limited to the amount you and any other shareholders have paid to own the company's shares (paid up capital). This is the theory however, company related legislation is increasingly holding company directors personally liable to a range of legal actions, and you will often be asked for a personal guarantee when seeking finance or requesting credit.

Whether you choose to create a new company or buy a 'shelf' company and register it with ASIC, you will incur compliance and set up costs however, once established it provides an extra level of flexibility in managing your business affairs and the structure needed to implement various tax minimisation strategies.

A company provides the flexibility to distribute profits to other shareholders, reinvest them in the company or be paid out to the shareholders as dividends. To reduce shareholders' tax, dividends can come with franking credits that are credits for the tax already paid by your company. A company can also claim a tax deduction for directors' wages and other salary costs, plus it is easy to sell or pass on ownership.

Establishing a Discretionary Trust

Typically the most complicated option, a discretionary trust can either be a valuable option, or an unwarranted burden on tax reporting dependent upon your circumstances and the projected turnover and profitability of your enterprise. In a discretionary trust, the trustee has enormous flexibility in distributing each year's income among the beneficiaries. A trust is run by its trustee, and because the trustee is personally liable for the trust's debts, it can limit your liability, especially if the trustee is your proprietary limited company. Each year's profits are distributed to the benefit of the trust's beneficiaries, who pay tax. Your trust generally does not pay tax (there are however some exceptions), your LBW tax accountant can provide details on the significant tax planning opportunities a trust can give you and your family.

In addition to assisting you with the most practical structure when setting up you business LBW Partners' financial and management accountants will also work with you to guide you through the business necessities, taxation, superannuation and compliance issues you should not be distracted by, allowing you to concentrate all your efforts and expertise in establishing your business.

Financial Accounting

Once you have set up in business you can count on your LBW partner to assist you with the creation of financial reports such as your balance sheets and income statements under an accrual-based accounting system. In addition LBW Financial accountants will prepare and present financial reports (compliant with Generally Accepted Accounting  Principles), for external users like banks & financial institutions or Government agencies wanting to make economic decisions about your business.

Management Accounting

Your business's management accounting information is intended to meet the needs of internal users. The reports are not bound by accounting rules and are therefore far less formal, providing any level of detail to your enterprise's owners and management, who require economic information and reports to assist them with management processes.

Once your business structure is settled, LBW can simplify the processes of preparing and lodging all Australian Securities and Investments Commission (ASIC) documents, paying ASIC incorporation fees, registering your choice of business name, acquisition of a shelf company and your business's Certificate of Incorporation. A specialist LBW accountant will prepare consent documents for Directors and Company Secretary plus the use of a registered office (if applicable). Your enterprise will be professionally established with the prerequisites of conducting business including your Company Constitution, Common Seal, the initial minutes of Directors and Shareholders meetings and agreements to take up shares.

Whether you are a sole trader starting out, represent a growing partnership, an established trust, a company limited by guarantee or a non-profit organisation, with LBW accountants on your team from the outset you can be confident that the structure you select and its implementation are ideally suited to your business needs and the prosperity of your enterprise's endeavours.

Your LBW accountant is ready to give you the business accounting, tax advice and business structure guidance every new business owner needs, e-mail us or phone (+61 2) 9411 4866 to have all your questions answered, or complete the on-line enquiry form right now.


LBW & Partners is a leading Sydney chartered accountancy, auditing, business consulting and financial planning firm providing corporate business strategy and tax planning advice to professionals in addition to associated personal accounting services. LBW's CPA and chartered accounting services cover all aspects of your Australian business' taxation including capital gains, payroll tax plus tax effective asset management and company audits. Unlike most Sydney accounting firms, LBW also extends personal tax minimisation, wealth creation and self managed superannuation advice in addition to corporate and management accounting needs for businesses on Sydney's North Shore and across Australia.

LBW & Partners, Sydney Australia
Personal chartered & business accounting services.  Financial advisors & superannuation planning.
Ph:  (+61 2) 9411 4866 Email: mail@lbw.com.au