One of the first things an entrepreneur should decide on when it comes to their business, is what its business structure is. All businesses can be classified under a type of structure which the business owner can follow. Some of these business structures are more suited to a certain type of business over others. For your information, the following are the most commonly used types of business structure in Australia:
- Individual or Sole Trader or Sole Proprietorship
The simplest business structure in Australia, the sole trader or commonly called a sole proprietor, is solely liable for debts and responsible for every aspect of his business. He has no other separate entity other than himself, and has a tax set at his personal income tax rate. This type of structure – ideal for shops and online stores — is the easiest to run and set up.
A company, a separate legal entity with generally higher set-up and administrative costs, is owned by shareholders. It would need to register with the Australian Securities and Investments Commission or ASIC. A company structure is suitable for growing businesses with an increased potential for liabilities.
The two main types of Australian Company are proprietary and public companies. An Australian Company should have an office in Australia, 1 Australian resident director for proprietary companies and 2 Australian resident directors for public companies. Like a company, it is owned by shareholders. According to firm Clayton Utz’s website, “The liability of shareholders will generally be limited to the unpaid amount on any shares held.” An Australian Company is managed by the directors.
As the name suggests, this business structure involves an agreement between partners who run a business together, sharing management of the business and liability. They’re also liable for each other’s debts and actions. These partnerships – other than other professional partnerships – are limited to a size of 20 partners.
- Joint Venture
A joint venture is the relationship between two or more parties carrying on a business while remaining separate entities. The agreement is often formed working towards a particular, specific business goal. “The rights and liabilities of the respective venturers will depend upon the terms of the joint venture,” explains Clayton Utz.
A trust involves a trustee and his beneficiaries; the trustee holds property or assets for his beneficiaries. The beneficiaries’ personal assets will not be exposed to risk by the business; the trustee will need to maintain yearly tasks and formalise his venture but this business structure allows for greater flexibility in income distribution, tax minimisation and asset protection.
Taxpayers Australia notes, “Ultimately, the business should be in the structure that is most appropriate in each stage of its life cycle. The important thing is to have a robust and long-term plan right from take-off.”
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