Small Business Structures

There are four main structures to choose from: sole trader status, a partnership, a proprietary limited company, and a proprietary limited company as trustee for a trust (whether a discretionary trust or a unit trust).

Sole trader status – or multiple sole traders operating in partnership – is easiest to set up: all that you need is an Australian Business Number (ABN). You are taxed on the company’s net profit at your individual tax rate, and end-of-year accounting is simple: all you need to do is produce a business profit and loss (P&L) statement, and prepare a personal tax return based on the net profit.

A proprietary limited company requires a company name, Australian Company Number (ACN) and ABN. You are creating a legal entity, which has the privileges of limited liability in the case of litigation or bankruptcy, and the company tax rate, but it has obligations in terms of documentation, record-keeping and registration with the Australian Securities & Investments Commission (ASIC). The establishment and annual tax and compliance costs are higher than for sole trader status.

A proprietary limited company as trustee for a trust has the added layer – of both responsibility and cost – of establishing the trust and maintaining its accounts. At the end of each financial year, the trust is required to distribute all of the trust’s profits - they cannot be kept in the trust.

Source: Steadfast Group Limited